Regulatory Landscape of Cyprus’s Crypto Ecosystem

Regulatory Landscape of Cyprus’s Crypto Ecosystem

Alignment with EU Standards

Cyprus’s crypto regulatory framework aligns seamlessly with European Union legislation, prioritizing consumer safety, anti-money laundering (AML), and counter-terrorism financing (CTF). These regulations span from registering crypto businesses to overseeing their operations.

The foundational law governing cryptocurrencies and their activities in Cyprus is the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007 (AML/CFT Law), overseen by the Cyprus Securities and Exchange Commission (CySEC). CySEC ensures adherence to AML/CTF rules among Crypto Asset Service Providers (CASPs) functioning in or from Cyprus.

CySEC also operates the Innovation Hub, designed to bolster Cyprus’s financial ecosystem. It offers regulatory and compliance advice while fostering dialogue, enabling authorities to better grasp market participants’ perspectives and suggestions.

Cyprus Cryptocurrency Regulation

A CASP refers to any individual or entity delivering one or more of these services for others:

• Trading crypto assets for fiat currencies.
• Swapping between crypto assets.
• Managing, transferring, storing, or administering crypto assets, including custody and control tools like crypto keys.
• Issuing or selling crypto assets, including initial offerings.
• Providing financial services linked to the distribution, supply, or sale of crypto assets, including initial offers.

Under the AML/CFT Law, CASPs must:

• Conduct due diligence on customers, including LCCs.
• Develop economic profiles for clients.
• Verify the origins of client funds.
• Track transactions involving crypto assets, wallets, and addresses.
• Spot and report suspicious activities.

Another key element is the CySEC Directive on the Register of Crypto Asset Providers, tied to the AML/CFT Law. This directive governs the creation, upkeep, and modification of the CASPs Register, outlining registration criteria.

The directive applies to:

1. Crypto firms offering services from Cyprus, irrespective of other EU registrations.

2. Crypto entities providing services in Cyprus, excluding those registered elsewhere in the EU for equivalent activities.

CySEC oversees CASPs by:

• Handling the registration process.
• Assessing the fitness of CASP directors and beneficiaries.
• Reviewing CASP organizational frameworks.
• Checking internal cybersecurity safeguards.
• Ensuring compliance with measures, particularly suspicious transaction detection and reporting.
• Confirming client fund sources.

The type of activities a CASP conducts determines its crypto license category:

• Class Details
  Class 1 (initial capital €50,000)
  Offering investment guidance.
  Class 2 (initial capital €125,000)

Providing Class 1 services and/or: accepting and forwarding client orders, executing client trades, swapping crypto with fiat or other crypto, handling financial services for distributing, offering, or selling crypto assets (including initial proposals), placing crypto assets without firm obligations, and managing investment portfolios.
Class 3 (initial capital €150,00

Including Class 1 or 2 services and/or: managing, storing, safeguarding, or providing custody for crypto assets or keys, underwriting or placing crypto assets with firm commitments, and operating multilateral platforms connecting multiple parties for crypto transactions.

How to Establish a Cryptocurrency Company in Cyprus

To engage in crypto activities in or from Cyprus, you must first set up a company in Cyprus, paving the way for CASP registration.

The preferred business form is the Private Limited Liability Company (LLC), open to foreign founders.

• Category Details
  Basic Requirements for LLCs
  Set up a functioning office in Cyprus with permanent local hires; no minimum capital needed; appoint a secretary and at least one director (can be one person for single-member firms); implement policies aligned with local laws; maintain a structure ensuring operational clarity and efficiency.
  Popular Crypto Events in Cyprus
  Initial Coin Offerings (ICOs), crypto mining, crypto trading platforms, wallet management, crypto startup crowdfunding, and cryptocurrency ATM installations.
  Stages of LLC Registration for Crypto Activities
  Reserve a unique company name; prepare foundational documents (e.g., charter, articles); submit application and documents to the Cyprus Registrar of Companies; pay registration fees; establish a corporate bank account; register with the Tax Department; seek CASP registration from CySEC.

Advantages

• Tax rates lower than most EU nations.
• No mining limitations.
• Remote management options for owners.
• Straightforward banking setup.
• CASP Registration Requirements in Cyprus

Registration Process

All Crypto Asset Service Providers (CASPs) intending to operate in or from Cyprus must register with the Cyprus Securities and Exchange Commission (CySEC) before commencing activities, a process typically taking six months.

CASPs established in the European Economic Area (EEA) or third countries, already registered with national authorities for AML/CFT purposes, need only notify CySEC of services planned or active in Cyprus (involving Cyprus residents or entities). Proof of registration for each service is required. If these services fall outside AML/CFT frameworks, a full CASP registration application must be filed with CySEC.

Applicant Requirements

• Incorporation as a Cyprus company.
• Directors (shareholders) with proven integrity, expertise, and skills.
• Minimum of four directors: two to oversee operations, two independent.
• Local policies and procedures compliant with regulations.
• Provision of initial capital.
• A company-owned and managed website for electronic transactions.
• No evidence of conflicts between staff and clients.
• Transparent and effective management and operations.
• Secure data processing systems to prevent loss or unauthorized access to client crypto data.
• Robust administrative, accounting, and risk assessment protocols.

Initial capital varies by CASP classification (as previously outlined), ranging from €50,000 to €150,000. Own funds must consistently meet the higher of:

The initial capital based on activity type.
25% of the prior year’s fixed costs, phased in:

• January 1, 2022: 30% of this amount.
• January 1, 2023: 60% of this amount.
• January 1, 2024: 100% of this amount.

How to Register with CySEC

CASPs must submit a hard-copy application, including questionnaires and documents, alongside a USB drive with an unlocked PDF of all materials, certified as true copies of the originals.

Fees must be paid at CySEC’s accounting department (“AIAS” Building, Diagorou Str. 19, 1097 Nicosia, 1st Floor). Applicants pay, obtain a receipt (issued upon presenting the application or its first page), and submit documents downstairs. Fees include:

• €10,000 (non-refundable application fee).
• €5,000 (annual renewal, waived for first-year approvals).

Alternatively, fees can be paid via bank transfer, with notification to accounts@cysec.gov.cy including service request, application’s first page, and transfer proof. A receipt is emailed upon confirmation.

Application Submission Details

Applicants must include:

• Company details, including name, registered office address, and a detailed outline of intended services.
• Capital specifics—amount, origin, and contracts proving lawful ownership by the CASP.
• Beneficiary profiles, demonstrating good standing and ability to ensure financial stability.
• Board of Directors’ credentials, showing impeccable reputation, expertise, and competence, with supporting questionnaires, evidence of suitability, and training details.
• Operational and organizational overview: a three-year plan, structure, and internal processes ensuring client-focused operations and risk mitigation.

The CASP Register application requires extensive documentation to confirm compliance with local rules, including:

• All corporate records (e.g., incorporation certificate, director/shareholder certificates, headquarters address, operations manual).
• A business strategy detailing marketing and financial workflows.
• AML/KYC procedures for client onboarding.
• Crypto wallet addresses and public keys managed by the CASP.
• Data handling processes and protocols.

Once authorized and listed on CySEC’s website, the company should email information.technology@cysec.gov.cy with “TRS Credentials – [company name] – [authorization number]” to obtain CySEC Portal credentials for electronic submissions.

Public CASP Register Information

CySEC’s public register lists for each CASP:

• Registration number, trade name, entity type, and identifier.
• Physical location.
• Approved services/activities the CASP can offer.
• Business website address.

Modifications (costing €1,000-€5,000) include updates to:

• Services or activities.
• Crypto wallet addresses.
• Board or management details.
• Beneficiaries.
• Website.
• Crypto Regulation in Cyprus Overview

Category Details
Period for consideration 6 months
State fee for application
€10,000
Required share capital
From €25,000
Corporate income tax
12.5%

Taxation of Crypto Companies in Cyprus

Crypto firms in Cyprus face the same tax obligations as other businesses, with access to tax relief and over 65 double taxation agreements.

The corporate income tax rate is 12.5%, among the EU’s lowest. Tax-resident companies (incorporated or registered in Cyprus) owe tax on all local and foreign income, paid provisionally via self-assessment (adjustable until December 31) in two payments (July 31, December 31). Overpayments are refunded; deficits incur 3.5% annual interest.

Resident shareholders and tax-resident firms pay a special insurance premium on dividends (17%), passive interest (30%, 0% if from business operations), and rental income below 25% (3%). Dividends to resident companies are often 0% if conditions aren’t met.

VAT is 19% on most goods and services, but EU law exempts crypto-to-fiat exchanges from VAT.

Financial Reporting Duties in Cyprus

Compliance with Accounting Standards

Crypto entities operating in or from Cyprus must align their accounting records with International Financial Reporting Standards (IFRS). Managing Directors are responsible for maintaining precise and open bookkeeping to support financial statement creation and provide clear transaction details.

For instance, these records must be retained at the company’s registered office for six years following the relevant year-end, ready for submission to the Tax Office upon request or inspection.

These statements are presented to shareholders at the annual general meeting, which may first occur within 18 months of incorporation. They require auditing by a licensed local auditor per IFRS guidelines, a mandatory process for all Cyprus-registered companies, regardless of scale or sector.

Audited financials, along with an annual declaration, must be lodged with the Registrar of Companies within 42 days after a 42-day period post-annual general meeting. Failing to file or audit these records is a criminal offense, with liability on the managing directors.

Our expert legal team at Papasavvas & Liskavidou LLC is delighted to offer personalized assistance with CySEC registration and securing a crypto license in Cyprus. Beyond navigating the application process, we’re here to help you establish a Cyprus company, streamline your tax planning, and handle accounting tasks.

Launching a Crypto Business in Cyprus

Favorable Business Climate

Cyprus designates cryptocurrency operations as a uniquely regulated field, offering predictability for entrepreneurs and investors while nurturing innovation in a supportive environment.

Key advantages of Cyprus’s business setting include:

• A robust legal framework, meeting global benchmarks and gaining trust from numerous international firms.
• A tax-beneficial landscape, with low corporate rates and perks like full tax relief on foreign dividends, optimizing tax strategies.
• An easy, affordable, and efficient company setup process.
• No obligation to house business owners.
• A safe ecosystem with high-caliber professional services, including advanced banking.
• EU membership, opening access to one of the globe’slargest markets.
• A route to Cypriot (and EU) citizenship via investments, such as €2 million in a new firm.

Authorities open to working with crypto stakeholders to enhance regulations.

Most Cypriot companies operate under the Companies Act, rooted in the English Companies Act 1948, governing formation, operations, and insolvency.

The Cyprus Registrar of Companies oversees the public company registry, managing incorporations and providing information on patents, trademarks, and business affairs.

Crypto firms, or Crypto Asset Service Providers (CASPs), fall under the Cyprus Securities and Exchange Commission (CySEC), tasked with enforcing AML/CFT rules. CySEC now views these as financial service providers, requiring licensing.

Trending crypto activities in Cyprus include:

• Initial Coin Offerings (ICOs).
• Cryptocurrency mining.
• Crypto trading platforms.
• Crypto wallet oversight and administration.
• Crowdfunding for crypto ventures.
• Installing and managing crypto ATMs.

To engage in these, you must first choose a legal structure fitting your business model, based on activity scope and governance needs.

Business Entity Options in Cyprus

Structures and Fees

Cyprus provides multiple business forms to match your needs, such as the Private Limited Company (Ltd) and Public Limited Company (Plc).

Advantages of Cyprus limited liability companies include:

• No nationality restrictions for company founders.
• Shareholder liability limited to their contributions.
• Potential partial corporate tax relief if not Cyprus tax-resident.

Company Type
Private Company Limited by Shares (Ltd)
The predominant business type in Cyprus, open to non-residents under the Cyprus Companies Law, Chapter 113. Features: A secretary (local or foreign, individual or entity); restricted share transfers; no public subscriptions for shares or debentures; directors can block share transfers without explanation; single-member companies allow one person to exercise general meeting authority, documented in writing; minimum two shares at any value.

Public Limited Company (Plc)
Popular among entrepreneurs seeking public capital, with unrestricted share transfers and possible exchange listing. Features: Name ends “Plc”; minimum seven shareholders, no cap; at least two directors; secretary (local or foreign, individual or entity); share capital paid before trading certificate issuance.

Crypto Company Requirements

Legal prerequisites for limited liability companies in crypto operations:

• A unique, acceptable name, approved by the Registrar (non-offensive, no government ties suggested).
• A registered office in Cyprus (no P.O. boxes), for official correspondence and record-keeping, publicly listed.
• An operational office with full-time local staff.
• Internal protocols, particularly AML/CFT, compliant with local crypto regulations before starting.
• A streamlined internal structure for clear, effective operations.

Setup documents include:

• Memorandum and Articles of Association.
• HE1 form, signed by an authorized attorney for District Court filing.
• HE2 form declaring the registered office address.
• HEZ form listing director and secretary.
• Witness signature for online registration.
• Certified translations by a Cyprus sworn translator for non-Greek charters, if required.
• HE5 form for Plc directors’ consent.

The memorandum must specify:

• Company name and goals.
• Limited member liability.
• Equity amount and share allocation.
• Founder names, signatures, and shares.
• Witness and drafting lawyer signatures.
• It should also outline director appointment rules, their duties in management and representation, accounting maintenance, and tax submissions, possibly dividing roles if multiple directors exist.
• Directors can be individuals or entities, resident or non-resident. Local directors ensure Cyprus-based control and tax residency.

Capital Requirements by Activity Type

Category Description
Category 1

€50,000: CASPs offering investment guidance.

Category 2

1. €125,000: CASPs providing Category 1 services plus: receiving/transmitting client orders, executing trades for clients, converting crypto to fiat or between crypto assets, engaging in financial services for distributing/offering/selling crypto (including ICOs), placing crypto without firm commitment, managing portfolios.

Category 3

2. €150,000: CASPs offering Category 1 or 2 services plus: managing/safeguarding/custodying crypto assets or keys, underwriting/placing crypto with firm commitment, operating multilateral systems for third-party crypto transactions.

Own funds must always meet the higher of:

• Initial capital per activity category.
• 25% of the previous year’s fixed costs, phased in: 30% from January 1, 2022; 60% from January 1, 2023; 100% from January 1, 2024.
• Companies limited by shares must hold a statutory general meeting within 1-3 months of starting operations.

All Cypriot firms, regardless of size or activity, must submit financial statements and directors’ reports for auditing. Management ensures accounting records are updated and stored at the registered office for six years, available for authority review.

Steps to Establish a Crypto Company

Company formation can take up to a month, with registration completed in five working days if documents are ready. Using a power of attorney can streamline the process.

To set up a crypto company in Cyprus:

• Reserve a unique company name with the Cyprus Registrar of Companies (approved in up to three days, valid six months).
• Prepare foundational and licensing documents.
• Open a corporate bank account.
• Transfer the authorized capital.
• Pay registration fees: €165 standard, plus €100 for expedited processing.
• Submit the application and documents to the Registrar of Companies.
• Apply for CASP registration with CySEC.
• Register with the Tax Department.
• CASPs planning to operate in or from Cyprus must register with CySEC beforehand, a process typically spanning six months.

Taxation of Crypto Companies in Cyprus

The Tax Department oversees tax collection, aligning the tax year with the calendar year. Tax obligations vary by activity type and residency status.

A company is tax-resident if managed and controlled in Cyprus or incorporated/registered there but managed abroad. Residents pay tax on all income, local and foreign, including:

• Corporate Income Tax (CIT): 12.5%.
• Capital Gains Tax (CGT): 20%.
• Special Defence Contribution: 3%.
• Value Added Tax (VAT): 19%.
• Social Security Contributions: 8.3%.
• Stamp Duty: 0%-0.2%.

Our dedicated team at Papasavvas & Liskavidou LLC is eager to assist with company setup, licensing, and tax advice. We also offer accounting services, ensuring efficiency, confidentiality, and meticulous care for your business’s success. Contact us for a tailored consultation.

Crypto Regulation in Cyprus 2023

Overview of Regulatory Continuity

In 2023, Cyprus maintains its existing national crypto framework, closely tied to evolving EU regulations. These gradual EU-wide changes aim to stabilize the crypto market, boost business confidence, and promote broader adoption of crypto products and services over time.

Enhanced EU Crypto Policies

In 2022, the European Securities and Markets Authority (ESMA) issued a report on the Distributed Ledger Technology (DLT) Pilot regime, part of the European Commission’s 2020 Digital Finance Package. This initiative seeks to maximize digital finance’s potential while minimizing risks, offering technical guidance and supervisory data recommendations. Launched in March 2023, it’s set for review in 2026.

Like a regulatory sandbox, the DLT Pilot allows safe testing of crypto technologies, enabling ESMA to evaluate if Markets in Financial Instruments Regulation (MiFIR) standards on trading transparency and data reporting need updates for DLT-based securities.

The EU has also advanced crypto oversight by refining existing rules and adopting new ones for Crypto Asset Service Providers (CASPs). In 2022, the Economic and Monetary Affairs Committee approved the Markets in Crypto-Assets (MiCA) regulation for an EU Parliament vote.

MiCA targets market abuse prevention, enhancing definitions, surveillance, and enforcement of insider information and trading. It supports market stability and encourages crypto product development with key changes:

Environmental Accountability: Significant CASPs must report energy use on their websites and to authorities, reducing crypto’s carbon footprint.

EBA Oversight: The European Banking Authority (EBA) will maintain a public register and perform rigorous AML/CFT checks on CASPs linked to high-risk or non-cooperative jurisdictions.

Stablecoin Rules: EU-based stablecoin issuers must hold a 1:1 liquid reserve, partly as deposits, ensuring free redemption, supervised by the EBA.

Cryptocurrency Licenses in Cyprus 2023

CySEC continues issuing three license types in 2023 as the AML/CFT regulator for Cyprus crypto businesses:

Class Description
Class 1

€50,000 initial capital: CASPs offering investment advice.

Class 2

€125,000 initial capital: CASPs providing Class 1 services plus: receiving/transmitting orders, executing client trades, exchanging crypto with fiat or other crypto, distributing/offering/selling crypto assets (including ICOs), placing crypto without firm commitment, portfolio managemen

Class 3

€150,000 initial capital: CASPs offering Class 1 or 2 services plus: administering/transferring/storing/custodying crypto assets or keys, underwriting/placing crypto with firm commitment, operating multilateral trading systems for crypto transactions.

Licenses take six months to process, requiring forms like the CASP Registration Application, amendment forms, and management/beneficiary questionnaires.

CySEC fees are:

• €10,000 application fee (non-refundable).
• €5,000 annual renewal (includes Investor Compensation Fund), waived for the first year.
• Unchanged requirements include:
• Cyprus incorporation.
• Directors with strong reputation, knowledge, and experience.
• Minimum four directors: two operational, two independent.
• Initial capital of €50,000-€150,000, per license class.
• AML/CFT policies for transparency.
• Secure data systems preventing loss or unauthorized access.

Administrative/accounting processes based on business complexity.

To establish a licensable crypto firm in 2023, choose a suitable structure—typically an LLC, open to foreigners—requiring a fully operational Cyprus office with local staff, a secretary, and director (possibly the same person for single-member firms), meeting all crypto regulations.

Crypto Taxes in Cyprus 2023

The Corporate Income Tax rate is 12.5%, rising to 15% per the OECD/G20 BEPS framework. Exemptions include:

• All dividends.
• Business-related interest.
• FX gains (except currency trading).
• IP disposal gains under the IP regime.
• Foreign permanent establishment profits.
• Securities sale gains.

Key 2023 tax dates:

• August 1: File TD.6 form (projected income/tax) and pay 50% (exempt if no profit expected).
• December 31: Final installment; revisions possible without 10% surcharge if over 75% of profit declared, otherwise 10% penalty applies.
• Personal Income Tax Relief

To attract talent, from July 2022:

• 20% of employment income is tax-exempt for seven years for non-residents (three years prior) starting work after July 26, 2022, with non-resident employers, no residency required.
• 50% exemption for 17 years for those earning over €55,000, starting after January 1, 2022, non-resident for 10 prior years.

The team at Papasavvas & Liskavidou LLC offers legal support for crypto projects and MiCA compliance. Please contact us at info@lplawyersfirm.com for further advice and guidance.