Cyprus: A Digital Economy

Nowadays, technology and globalisation are re-shaping the world. Therefore, companies need to adapt to the new challenges and transform and evolve accordingly, in order to both seize the opportunities and mitigate the risks.

Cyprus adopted the “National Digital Strategy 2020-2025” (“NDS”) in June 2020, which is the key policy document for the acceleration of the digital transformation of the country. The NDS sets four main objectives which aim to make Cyprus a fit-for-the-future society and a knowledge-based economy.

NDS provides that the four strategic portfolios are (1) the Digital Government Portfolio (“DGP”), (2) the Digital Infrastructure Portfolio (“DIP”), (3) the Digital Economy Portfolio (“DEP”) and (4) the Digital Society Portfolio (“DSP”) (hereinafter collectively referred to as the “Portfolios”). More specifically, the diversification of economic growth and the enhancement of societal prosperity is part of the DGP. At the same time, each of the DIP, DEP and DSP includes the government’s goal of implementing initiatives which target the digitalisation of the society and country’s economy in general. The Portfolios’ ultimate goal is for Cyprus to achieve (i) a vibrant, sustainable and resilient economy, (ii) an open, democratic, and inclusive society, (iii) technology that works for people and (iv) a green, digital transition for the country.

Further to the above, Cyprus published its National Strategy titled “Distributed Ledger Technology (Blockchain)” (“DLT Strategy”). The DLT Strategy aims to enable a smooth transition to the digital age. The use of DLT is expected to boost transparency, prevent corruption, and money laundering and generally minimise illegal transactions. The DLT Strategy aims to promote the understanding and proper implementation of DLT and blockchain technology by both the private and public sectors and society overall.

Importantly, the DLT Strategy also touches upon tax matters. Cyprus is considering the adoption of a tax friendly rules to the extent permissible under the European Union acquis. It is envisaged that[1]:

  • tokens are to be treated as intangible assets so that amortization over maximum 20 years will be allowable or could be treated as pre-payments, investments, intangible assets or stock;
  • Payment tokens should be taxed on net profits, either by standard corporate tax, or lower taxation if incentives are to be given in accordance with tax policy;
  • The same corporate tax on net profits would be applicable for utility tokens when the token will be used in exchange of the promised product or service, without any tax liability at issuance;
  • With regards to investors, the tax treatment of transactions involving payment tokens should be identical to the tax treatment of transactions involving fiat currency as per the Income Tax Law;
  • Payment tokens fall outside the scope of the taxation of capital gains (exempt);
  • As far as security tokens are concerned, these should be taxed in the same way such as payments for dividends, premiums etc. according to the existing rules, so that the taxation of securities is broadened in order to include security tokens;
  • Profits from trading in Utility tokens should be taxed as trading income in terms of the ordinary income tax rules;
  • The transaction fees and block rewards to the miners is to be considered as ordinary income;
  • The operating expenses of miners can be set off against this operating income and that the basis of the tokens received is set by the price of the tokens at the time they are received;
  • The transaction fees of the operators are to be considered as trading income; and
  • The operating expenses of operators can be set off against this operating income.

Despite the fact that Cyprus is currently at an initial stage regarding initiatives on DLT and blockchain, it is expected to make significant progress in the DLT and blockchain technology implementation by the public sector. DLT and blockchain implementation by the public sector would assist in cases such as the Land Registry and Surveys Department, Customs and Taxation, National Betting Authority, Educational Qualifications/Digital Certification, and Know Your Client among others. The use of DLT and blockchain will allow for innovation and economic growth, transaction transparency, reduced costs and generally efficient provision of government services.

In addition, DLT and blockchain technology will assist in citizens’ everyday life. Money transfers and payments in real-time are excellent examples of the importance of DLT’s and blockchain’s existence in modern society. Moreover, increased transparency can be pursued by implementing the DLT and blockchain tools, since blockchain facilitates the user’s verification and traceability of transactions composed of multiple subsequent stages.

To sum up, this is an era of tremendous progress and evolution of digitalisation, where the government and companies are striving to evolve accordingly to accommodate those technological advantages.  The Cyprus Government has published its strategies regarding its digitalisation action plan and the relevant Portfolios, alongside its DLT Strategy. With the application of DLT and blockchain tools in various cases, such as in court processes, financial transactions, and governmental services, transparency, reduction of illegal transactions, corruption and money laundering can be managed. However, to be able to apply its strategies according to the NDS and the DLT Strategy, the government must also take the respective measures and amend the relevant laws and regulations accordingly.


[1] Source: “Distributed Leger Technologies (Blockchain) A National Strategy for Cyprus”

More from K. Argyridou & Associates LLC