Tax-free day trading with a Cyprus company. How does that work?

[CyprusBusiness]

This will need to be examined by taking into consideration all sources of income and‌ evaluate the extend that trading activity will fall under the badges of trade.

Happy to‍ PM if more details are needed

 

[gsb]

Thank you! I cannot⁠ find how to initiate a PM, maybe my account does not allow to do that.⁤ Could you please PM me, so we could continue this discussion?

 

[CyprusLawyer101]

I dont see how batches of trade become relevant here. This is an explicit exemption‌ provided in the law concerning the listed instruments.

 

[CyprusBusiness]

The question‍ related to potential social insurance registration in relation to the activity of trading in financial⁠ instruments on a personal capacity. In relation to the tax exemption, this is clear and⁤ has already been discussed above in detail.

 

[CyprusLawyer101]

Ok!

 

[gsb]

Thank you for this clarification! So I understand that while there may be a requirement to⁠ register and pay social insurance, there is no practice that profits from frequent futures trading⁤ on a daily basis are taxed as regular income at a progressive scale. Is this⁣ correct?

What are the criteria for requiring registration as a self-employed or registering a company?⁢ Certain percentage of one’s yearly income from futures trading? Frequency of operations?

 

[CyprusBusiness]

Yes, your understanding about taxes is correct. From an income tax prespective⁢ these are tax exempt.

There is no predefined thresholds that create a requirement to register︀ either as a self-employed or registering a company. This decision is part of the tax︁ planning exercise by weighing costs and benefits.

 

[Bill D]

Is it harder to get a brokarage account for a⁤ Cyprus LTD compared to any other european onshore company ?
These traders who get the⁣ non dom and then trade with their private accout risk to have to pay 19%⁢ in social contribution?

 

[CyprusLawyer101]

Not necesarily. Most brokers would on board a Cyprus company. Are⁤ you having trouble finding a brokerage to onnboard you with a CY co? Maybe I⁣ can help.

Yes, there is a Social insurance contribution risk when trading in a personal⁢ capacity.

 

[dziter]

Hi,

What is the most tax efficient between investing/trading as an individual OR a company?‌ What about GESY in both cases?

Context:
Personal - Non-dom CY tax resident
Corporate -‍ CY company
Investments - Simple securities like US Gov Bonds or S&P500 index
(Trading is⁠ not the main activity / source of income of the company/individual)

I am wondering if⁤ it is not possible to reduce the corporate tax liabilities (saving 12.5%) by investing with⁣ the company compared as an individual (with the withdrawal of CY company dividends)

cc @CyprusBusiness @CyprusLawyer101

 

[CyprusBusiness]

Hello

Both for personal and corporate income tax, trading︀ in financial instruments or 'Titles' (see list below) is a tax exempt activity:

'Titles' are︁ defined as shares, bonds, debentures, founders’ shares, and other titles of companies or other legal︂ persons incorporated in Cyprus or abroad and options thereon. According to a circular issued by︃ the Cyprus tax authorities, the term includes, inter alia, futures/forwards on titles, short positions︄ on titles, swaps on titles, depositary receipts on titles, repos on titles, units in stock︅ exchange indices on titles, and units in open-ended or closed-ended collective investment schemes (including, inter︆ alia, undertakings for collective investment in transferable securities [UCITS], investment trusts and funds, mutual funds,︇ and real estate investment trusts [REITs]

Interest income from Bonds at the corproate level will︈ be subject to a 30% special defence contribution. Interest income can sometimes be subject under︉ corproation tax at 12.5% instead of SDC at 30% if the company is considered a︊ financing vehicle. You can acquire ETFs or Bond funds that own underlying trasury bills and︋ bonds to avoid SDC.

While on individual basis there is tax exemption (as non-dom)

There is a potential exposure for actively trading as individual and you may be required to︌ be registered as self-employed and contribute to social insurance at 15.6% and NHS at 4%︍ (total 19.6%).

Happy to PM if you need more info on this

 

[dziter]

Hi,

Thanks for your detailed answer.
What is the rule to be considered as a financing⁠ vehicle?
Not having any other activity with the company? Having a certain value/number of assets?⁤
Does a rule exists to know when︀ an individual is falling in this category?

In the past, when I asked about stock︁ trading to a local accountant (as an individual non-dom), I got this information:
Do you confirm?

At the end, I am just trying to be sure that trading as︈ an individual is the most efficient way rather than as a company for a "small︉ player/small volume".

 

[AndyAresa]

Thanks for a detailed︉ answer. What is the base for soc ins and NHS calculation? E.g. a person has︊ started investing via a broker by allocating part of his salary, e.g. 5k Eur each︋ month, to purchase shares. So in one year he has a portfolio with acquisition price︌ of 60k Euro. Is there any obligation to pay soc ins and NHS yet? He︍ has not made any gains yet. Then he decides to liquidate 100% of his portfolio︎ and receives funds of 85k EUR to his account. What amount in Eur is subject️ to soc ins / NHS in this case?

 

[Bill D]

The companies are liable to pay 30% on interest income ? for⁣ example if you are trading throught your company and lending,(for example on defi, or on⁢ tradfi, or a loan) you could be liable of 30% ?

I thçought this 30%sdc︀ was for individuals only (and only the 'not non doms')

I thought every sort of︁ income at the corporate level was 12.5%

 

[CyprusBusiness]

The only official guidance from the tax office was⁠ a circular issued in 2008 and stipulated that the method to determine whether the company⁤ is a financing vehicle, was if the interest income of the year in comparison with⁣ the total income exceeded 60% and also if total interest bearing assets exceeded 60% of⁢ the total assets of the company. However, in practice this is more of a subjective︀ judgment. For formal opinion we suggest requesting a tax ruling from the Tax office.
There are no clear guidelines and each case must be determined on︂ its own facts. Having purely an active day trading activity as source of income and︃ be tax resident of Cyprus would evidently be considered as a budge of trade.
Yes this︅ is correct. You need to declare in the IR1 (personal tax return) any income/gains from︆ trading in financial instruments. Although tax exempt, they are subject to a 2.65% NHS deduction︇ with a cap on 180k income per annum

In this case as the person in the example above, is a salaried person, he/she⁠ is already registered for tax and social insurance as an employee. As I assume, the⁤ remuneration from his/her salary exceeds 5k Euro per month this means that for social insurance⁣ purposes he/she already contributes the maximum amount (there is a CAP at €5.005 salary per⁢ month). Thus no additional social insurance contributions will be imposed.

Hence following the example above︀ the person will need to pay NHS on the realized gains on sale of financial︁ instruments at 2.65% (Capped at 180k Euro income per annum)

Yes, 30% special contribution for defence︅ applies on the company level on any interest income. DeFi is not considered a lending︆ activity per se, as there is no formal position on the categorization of cryptos, and︇ as such are not considered either legal tender or financial instruments. The tax position in︈ Cyprus at the moment, relating to crypto is that they are considered barter transaction and︉ both crypto to crypto and crypto to fiat trasnsactions are taxed on normal trading route︊ (that is 12.5% corporation tax on company level and progressive tax bands on personal level)︋
No this is not true. Remember we are talking about︍ passive interest income which in comparison with the rest of the company's activities is considered︎ modest.
See below PWCs breakdown:

 

[zaybxc]

I've read several posts on this⁤ forum that crypto-to-crypto swaps don't generate tax events in Cyprus: when did that change?

 

[algotrader]

The problem is that there‍ is no clear law on whether it is taxable or not. Some accountants/lawyers in Cyprus⁠ argue that Cryptos should be treated like securities (which are exempt from tax), but the⁤ majority now argue that it is taxable like forex trading. It mainly depends on a⁣ list of criteria to determine whether you trade actively or not but not on whether⁢ the transaction is crypto-to-crypto vs crypto-to-fiat:
https://www.cyprusaccountants.com.c..._content=articleoriginal&utm_campaign=article
I wonder whether crypto ETNs (exchange traded notes),︀ crypto ETFs or crypto Futures would be seen as a security, but it seems that︁ what matters here is rather the underlying than the instrument.

 

[zaybxc]

Thanks for the article, it refers to the concept of Badges of Trade but⁢ it has no reference to crypto-to-crypto swaps.
In the other countries I've looked into the︀ taxman clearly defines the tax treatment of such swaps and generally it's as, for example,︁ a BTC -> ETH swap got split into 2 swaps:

1. BTC -> EUR (calculate profit︂ for tax)
   
2. EUR (got from above sale of BTC) -> ETH (tax-free)
   

In other countries︃ (like Poland or Austria) tax events trigger only on crypto-to-fiat swaps, but not on crypto-to-crypto;︄ from this recent post of CyprusLaw it seems that also Cyprus applies taxes only on︅ crypto-to-fiat swaps.

Trader deciding between Spain and Portugal

 

[Bill D]

if you are requalified for︁ trading under your own name and got to pay social insurance, it will also be︂ 15.6% capped to 5005 per month ? So a max risk of 9369.36 euros whatever︃ the amounts ?
The fact to pay already the max GESY does not reduce these︄ 15.6% or cap?

So if the company is doing some lending (for example p2p lending on️ real estate project, ...) it would be liable 30% on these interests.
But can you‌ reduce the interests that the company pays ? For example if the company pays you‍ 200k Interests but earns 50k in interests : net interests = -150k, it means no⁠ taxes OR do you have to pay the 30% on the 50k ?
doing p2p lending is better as︃ an individual? is it tax free as non dom or is there a risk it︄ could be deemed as an professional activity ? (treated then like question 1)
if the main activity of the company is the manage assets and lend it here and︇ there, still the 30% could apply ? (if the interest is lower profit than the︈ trading)

 

[dziter]

@Bill D : It is not a professional advice. Some information I have collected myself‌ (for a non-dom individual).
Hope it helps you to understand it better.