Cryptocurrency activities in Cyprus are legal and formally regulated by the Cyprus Securities and Exchange Commission (CySEC). A national registration regime for Crypto-Asset Service Providers (CASPs) has been in force since 2021, requiring compliance with strict AML/KYC standards. As of late 2024, Cyprus is transitioning to the EU-wide Markets in Crypto-Assets (MiCA) regulation; CySEC has ceased accepting new applications under the national regime and has begun the preliminary assessment process for MiCA authorizations. Retail trading is permitted, and tax treatment currently depends on whether activity is classified as active trading (income tax) or passive holding (capital gains, often tax-exempt).

Cryptocurrency Regulatory Analysis: Cyprus

I. Regulatory Status
* Allowed-Regulated: Cryptocurrency activities are legal and formally regulated.
* The country is in a transitional phase from a national regulatory regime to the EU-wide Markets in Crypto-Assets (MiCA) framework.
* Retail trading is permitted.

II. Key Regulatory Bodies
* Cyprus Securities and Exchange Commission (CySEC): The primary regulator for crypto-asset service providers and the designated competent authority for implementing MiCA.

III. Important Legislation
* Prevention and Suppression of Money Laundering and Terrorist Financing Law (Amending Law L.13(I)/2021): Enacted February 18, 2021. Formally defined Crypto-Asset Service Providers (CASPs) and mandated their registration with CySEC.
* Directive for the Register of Crypto Asset Service Providers (R.A.A. 269/2021): Enacted June 25, 2021. Established operational requirements, capital standards, and registration procedures for the national CASP regime.
* Circular C417: Issued November 25, 2020. Provides prudential guidance for Cyprus Investment Firms (CIFs) on capital adequacy and risk management for crypto assets.
* Markets in Crypto-Assets Regulation (MiCA) (Regulation (EU) 2023/1114): Enacted May 31, 2023. The EU-wide regulation that is replacing the national CASP regime, fully applicable from December 30, 2024.

IV. Compliance Requirements
* Registration/Authorization: Mandatory registration for CASPs under the national regime (now closed for new applicants) and future authorization required under MiCA.
* AML/CFT: Strict compliance with the national AML Law, including adherence to the FATF Travel Rule and EU AML directives.
* Prudential Standards: CIFs dealing in crypto must follow capital and risk management rules outlined in Circular C417.
* Taxation: No specific crypto tax law. Treatment depends on activity classification:
* Active trading profits are taxed as Income Tax (up to 35%).
* Passive, long-term holding gains are generally treated as tax-exempt Capital Gains (0%), subject to a 'badges of trade' test.

V. Notable Restrictions or Limitations
* Regime Distinction: A clear regulatory separation exists between CASPs (for spot/custody services) and CIFs (for crypto derivatives/financial instruments under MiFID II).
* Application Freeze: CySEC stopped accepting new applications under the national CASP regime on October 17, 2024.

VI. Recent Developments or Notes
* MiCA Transition: CySEC has ceased new national CASP applications and has begun the preliminary assessment process for MiCA authorizations.
* Grandfathering Provision: Existing nationally registered CASPs can continue operating under the old rules during a transitional period until July 1, 2026, or until they receive MiCA authorization.
* Cyprus is a popular hub for forex and investment firms, many of which have expanded into crypto derivatives, making the CASP/CIF distinction critical for compliance.