The crypto market has been on an overall upward trend over the last couple of months, but the fact that bitcoin has been declining steadily after it reached an ATH of $68,622.63 on the 11th of November is leading many to speculate that we might be heading towards a bear market this winter. Nobody likes a bear market, and you’d be right to start worrying about saving your profits from the bears. There are two ways to do this. One way would be to consider storing your assets as stable coins like USDC. The other way would be to sell your crypto for fiat and then transfer it to your bank account. This article attempts to examine this very process in Cyprus.
In my previous article, I gave a brief overview of the current legislative framework that exists in Cyprus. Roughly speaking, the only solid regulation that exists is relevant to CASPs (Crypto-Asset Service Providers), which are regulated by CySEC and the amendment to Law of 2007 (188(I)/2007), which aims to implement the 5th AML directive, and is not relevant to private traders. When withdrawing profits derived from cryptocurrency, usually, there are two things to worry about: taxes and the attitudes of banks.
Taxes
In Cyprus, only ICOs (initial Coin Offerings) are mentioned when it comes to taxes. ICOs are a way to crowdfund for a blockchain startup, and proceeds from an ICO are considered taxable income, subject to Cyprus’ attractive corporate tax of 12.5%. As for VAT, the only authority is the European Court of Justice Case C-264/14 Hedqvist, which deems transactions from fiat currencies to cryptocurrencies and vice versa exempt from VAT. Other than that, no coherent regulatory framework for taxing private crypto transactions exists in Cyprus yet.
Unfortunately, however, withdrawing your profits from a crypto exchange to a Cypriot bank might be near impossible.
The Attitude of Banks
In 2014, the Central Bank of Cyprus (CBC), which is the main authority for financial institutions, made its attitude towards cryptocurrencies very clear when it issued a warning with the title “Attentions to the risks associated with cryptocurrencies”. In this warning, the CBC expressed that it does not authorize any activity relating to cryptocurrency and that it does not consider them “legal tender”. Furthermore, the CBC outlined some of the risks associated with cryptocurrencies, emphasizing the potential for their misuse in illegal activities, like money laundering. After the amendment to Law of 2007 (188(I)/2007) was passed, which aimed to solve those exact concerns, everyone expected the CBCs attitude to change. However, in a series of guidelines the CBC issued to other banks of Cyprus, it strongly discourages accepting transfers to or from crypto exchanges.
As of now, due to a sort of pact that exists between Cypriot banks following the CBC’s guidelines, it is very unlikely that you will be able to send to or receive money from crypto exchanges like Binance. This is further evidenced by several reddit threads started by Cypriot crypto enthusiasts looking for answers on how to cash out and expressing grievances with the current attitudes of the banks, alleging from personal experience that no Cypriot bank currently accepts money from crypto exchanges.
Is this likely to change?
The Cypriot government shows a positive attitude towards blockchain technologies and cryptocurrency, as evidenced by the fact that a working group was created through the Council of Ministers decision N.85.629, to deliberate on creating and implementing a legal framework for blockchain technologies. All in all, the attitude of the government and the Cyprus Securities and Exchange Commission (CYSEC) indicates that Cyprus wishes to be a major runner this new race to become the Silicon Valley for crypto.
With the Commission’s reasoned opinion putting the golden passports to rest and with the COVID-19 pandemic ravaging the tourist industry of Cyprus, I argue that a good avenue for recovery of Cyprus’ economy would be to become the most beneficial place for crypto companies and crypto traders alike, within the constraints of EU law of course. For this reason, it is likely that the banks will have to change their attitude towards cryptocurrency, as there might not be another chance for Cyprus to recover amidst yet another emerging COVID variant.
Conclusion
There is no coherent regulatory framework for taxes on transactions involving cryptocurrencies as of the date of writing, and authority points to the fact that transactions in crypto are exempt from VAT. One may be excited by this opportunity, and hurry to take profits in order to avoid the next bear market. But you will be disappointed by the attitude of Cypriot banks towards crypto transactions, as even the implementation of AML 5 into national law did not change the view of the Central Bank of Cyprus, which is the guiding authority for all financial institutions of Cyprus.
However, becoming the Silicon Valley of crypto might be one of the best ways for Cyprus to attract businesses and investors, which will help heal the economy significantly amidst the COVID-19 crisis. For this reason, I believe the current attitude of the banks will change inevitably.
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