ICO through Cyprus: Taxes and VAT
Not so long ago, ICO has become a popular method of raising funds for just opening and existing companies in order to finance innovative projects based on Blockchain technology.
Cyworld Wealth, a business-oriented company, immediately identified the needs of the business world for the development of this innovative technology based on Blockchain. She began to develop in this direction, creating a team of professionals to cover all aspects of ICO activities and to assist her international partners in this matter.
In this article, CYWORLD WEALTH will try to clarify the issue of taxation. In particular, we will consider the issue of how ICO income received by a Cyprus issuing company is subject to direct taxation (corporate tax) and indirect taxation (VAT).
The review will be conducted from the perspective of the issuing company ICO in Cyprus. The tax regime for investors or token users largely depends on the tax laws in their country of residence, and this is beyond the scope of this publication.
In the absence of specific guidance from the tax authorities of Cyprus on both taxes and VAT for ICOs, we will consider the issue on the basis of applicable provisions (IFRS – International Financial Reporting Standards) regarding income.
It must be emphasized that the rights and authorities represented by the issue of tokens are not universal. Each case has its own characteristics that require careful consideration.
Currently, the standard VAT rate in Cyprus is 19%. Since the ICO process includes a multinational approach of participants from all over the world, we will consider VAT from the point of view of the European Union (EU), where issued tokens will mainly be offered.
Income Tax / Corporate Tax
Cyprus can become one of the most profitable EU jurisdictions for ICOs, thanks to its legal framework and flexible tax laws, on the basis of which the business income of a Cyprus company is taxed at 12.5% of the net profit. The tax rate can be further reduced subject to careful tax planning.
Intellectual Property (IP)
In addition, the so-called IP Box regime operates in Cyprus – the provision of a partial exemption from income tax on intellectual property income. According to which 80% of profits derived from intellectual property can be considered expenses, and only 20% of income is taxed at 12.5%. As a result, the effective tax rate is reduced to 2.5%.
Since the most common ICO option is aimed at developing intellectual property, the preferential Cyprus IP Box regime with a reduced tax rate of up to 2.5% is available to ICO issuing companies, which makes Cyprus a profitable investment jurisdiction.
For more information about IP Box mode, please refer to our publication of tax updates “New Cyprus IP Box Mode”, which can be downloaded from our website.
How CYWORLD WEALTH can help
Our consultants, lawyers and accountants can help potential ICO organizers in the following matters, subject to evaluation of the project, based on Cyprus law.
- Legal support of the ICO procedure.
- Review and consultation on Whitepaper to confirm compliance with Cyprus law.
- Classification of tokens to be issued.
- Compilation or review and consultation on the terms of the sale of tokens.
- Drawing up or consideration of agreements between the issuer and other organizations (if applicable).
- Drawing up shareholder agreements (if any).
- Notification to authorities: ICO project (if necessary).
- Drafting and analysis of a document listing risk factors (if applicable).
- Tax structuring and consultations on the structure of ICO.
- Tax rules (if applicable).
- Overview of VAT and recommendations on the structure of ICO.
- VAT decisions (if applicable).
- Formation of companies for use in the project.
- Legal analysis of the Cyprus legal framework.
- Consulting on AML, KYC and Compliance – preparation of relevant manuals.
- Advice on data protection, law – GDPR.
- Technical support for GDPR.
- Tax advice.
- VAT consultation.
- Accounting Issues.
- Support of financial issues and opening bank accounts.
- Legal execution and preparation of documents.
- Development and creation of trusts for beneficiaries / shareholders.
- Permanent legal advice on this and related issues.
We draw your attention to the fact that this article is for informational purposes only. For more advice, contact us at the contacts listed on the site.