Direct capitalization of Cyprus LLC with cryptos - permitted or still up in the air?

[WorldCitizen99]

Does anyone know if a business owner of a Cyprus LLC/LTD is allowed to capitalize their company directly with cryptos?
i.e. putting cryptos into the company as an asset for the purpose of trading them, without triggering any kind of taxable event.
There must be hundreds if not thousands of crypto traders who have moved to Cyprus to take advantage of the low tax rate. Someone must have obtained a tax ruling already.
The accountant I hired in Cyprus said we can get a ruling but it will prob take 1-2 months
I find it hard to believe that someone didn't already request a ruling and gotten an answer months ago.

After doing a little research online, I came across a paper that discusses this issue (but only in Switzerland and Croatia) for those who are interested in a more academic treatment of the topic.

https://hrcak.srce.hr/file/349463

 

[JohnLocke]

Maybe @CyprusLaw @CyprusLawyer101 @CyprusBusiness are able to help you.

 

[Don]

Yes you can do it of course, although Cyprus is more known to be︃ attractive for trading company shares/securities as this is exempt from capital gains tax.

Its 12.5%︄ tax, although some accountants and even lawyers market it differently.

Multiple jurisdictions allow injecting capital︅ without triggering tax events.

 

[WorldCitizen99]

My accountant and I extensively reviewed the⁠ issues around trying to achieve the 0% capital gains on crypto. The conclusion was crypto⁤ is so new and they are still working to establish what category it fits into.⁣ He advised me to expect to pay 12.5% tax on my crypto gains, which I⁢ am OK with. He said that if I wanted to really try for the 0%︀ rate, maybe selling it all in a one-off transaction might work but it would be︁ best to get an advanced tax ruling. Even then, one of the badges of trade︂ is "profit-motive". Not easy to convince the tax authorities that there was no motive to︃ make money. There are some situations I've heard of, like if it is part of︄ an inheritance or trust structure, then maybe one can say there is no profit motive.︅ From my understanding, there are ways to reproduce these situations but they are complicated, expensive︆ and don't always work. I've resigned myself to the fact that sometimes the simplest thing︇ is to just pay the tax if it's under my personal threshold (for me it's︈ 10-15%) and not threaten the whole enterprise.

 

[Don]

One structure for truly tax free crypto trading is if you︇ get zero tax residence for yourself and then set up an alternative investment fund, e.g.,︈ in Estonia (registered with FSA but unlicensed).
Then the profits will be considered passive from︉ your personal perspective, and also not taxed in the fund which is tax transparent.
Estonian fund management company also pays no tax until profit is distributed so effective tax can︊ be zero.

Drawback is higher setup/maintenance costs than your average offshore company.

If you're trading︋ with your own capital and don't have so high profit margins yet it might be︌ worth setting up an unregulated structure instead.

 

[WorldCitizen99]

Alternative investment fund - sounds interesting
Do you eventually pay tax when you take the money out of the Estonian structure, or︁ is the idea to expense all the profits?
In my case, I was advised to︂ stick to countries that had tax treaties with my home country bc of the few︃ ties that I wasnt ready to part with. So there were no 0% tax countries︄ on the list. Well there was Dubai, but the treaty only applies to Dubai nationals.︅
Cyprus was the best choice for me taking into account language, weather, business and tax︆ environment.

 

[Don]

No, investment︀ fund works in a way that there are two entities: a management company + fund...︁ The fund pays no tax, but normally pays a fee to the management company to︂ manage the fund (e.g., 1%). The fund is a hybrid entity, meaning its tax transparent,︃ the fund profits should be taxed only at the personal level, so e.g., if you︄ are an UAE tax resident then there is no tax from passive income that you︅ receive from abroad.
The management company pays only tax on distribution, but it could also︆ pay out tax free salary, so effectively it could still be zero rax.
This arrangement︇ is effectively helping to structure the activity as passive looking from your personal perspective, but︈ also benefit from EU banking.

 

[WorldCitizen99]

Damn that sounds pretty good
I'm hoping to sell all my︂ cryptos at the peak so that I have everything in after-tax profits and then I︃ don't have to worry about exit tax, tax treaties and all the rest of that︄ bs before I could think of setting something like this up but thanks for sharing︅ that. It sounds pretty cozy.

 

[yngmind]

What is the point of establishing a︁ crypto company?
Why you can't do that personally?

 

[Don]

In some cases you can and there is no point.‍