A Crackdown on Cryptocurrency Tax Evasion Is Implemented
The United Kingdom is one of the first countries to compile and share digital currency transaction records.
As of 1st January 2026, the implementation of new regulations in the United Kingdom and over 40 other countries will impede the ability of crypto investors to conceal their profits from international tax authorities.
Major cryptocurrency exchanges will be obligated to gather comprehensive transaction records for UK customers, which will include the amount they paid, the value of their assets when they were sold, and any profits they generated, effective January 1st ,2026. Additionally, crypto exchanges will gather and submit data to HMRC regarding users’ tax domicile.
The Cryptoasset Reporting Framework (CARF), which was devised by the OECD, is being implemented by the UK as part of the initial wave of 48 countries.
HMRC will automatically share information received from exchanges with other participating tax authorities, which include all European Union (“EU”) countries, the Channel Islands, Brazil, the Cayman Islands, and South Africa, as part of the rules, starting in 2027.
Andrew Park, a tax investigations associate at Price Bailey, stated, “This is the beginning of the end for crypto investors who believed they could invest and profit from crypto in secrecy from tax and other law enforcement agencies.”
“Crypto investors residing in signatory jurisdictions such as the United Kingdom must be cognizant that their crypto data will be routinely shared with their tax authorities. They must carefully evaluate whether they are completely tax compliant.”
In total, 75 countries have pledged to implement the CARF rules. Global Crypto centers, including Switzerland, the United Arab Emirates (“UAE”), Hong Kong and Singapore, are expected to implement the CARF rules in 2027 and begin exchanging information as of 2028. The CARF rules are scheduled to be implemented in the United States as of 2028, and information exchange will commence in 2029.
Seb Maley, the CEO of Qdos, a tax insurance provider, stated that the rule change represented “a significant change in the regulation of crypto trading from a tax perspective.”
He further stated, “HMRC will shortly be able to determine the precise individuals who are generating profits and the amount of those profits.”
In the United Kingdom, individuals and legal entities who sell or dispose of crypto assets are subject to capital gains tax on profits that exceed their annual allowance of £3,000.
In the event that HMRC deems the acquisition and disposal of crypto assets as “commerce,” they may be subject to national insurance and income tax.
Individuals are required to maintain records of their transactions and report and pay any tax owed on an annual self-assessment return. In addition to the act of selling a cryptocurrency, disposals may involve exchanging one coin for another, paying for a product or service with cryptos, or distributing tokens to another individual, provided that they are not a spouse or civil partner.
Dawn Register, a tax dispute resolution partner at BDO, an accountancy firm, stated that HMRC has been concerned for some time about the high levels of non-compliance among crypto investors.
She stated that the tax agency, by participating in the international exchange, would have access to a “richer dataset” and could more effectively target UK tax residents who are not correctly declaring their gains.
HMRC has implemented numerous measures in recent years to combat tax evasion and avoidance related to crypto assets. These measures include the issuance of guidance regarding the timing of tax payments when selling cryptoassets.
In addition, a voluntary disclosure facility has been implemented to enable crypto investors to disclose undeclared gains and unpaid taxes that occurred prior to April 2024.
During the 2024-25 tax year, HMRC increased the number of letters it sent to individuals suspected of owing tax on their cryptocurrency holdings to 65,000, a trebling from 27,700 in the previous year.
Meanwhile, this year’s self-assessment tax return form for year 2025-2026 includes a distinct section for taxpayers to declare their crypto gains and losses, marking the first time this has been done.
Individuals who experienced cryptocurrency gains during the 2024-25 tax year may be required to submit a tax return by January 31, 2026.
Why Cyprus is a superior solution to the United Kingdom for crypto profits / gains
Unlike the United Kingdom that has a taxation of 18 % – 24 % on capital gains on cryptoassets (applicable for above £3 000), Cyprus has only 8% flat tax on crypto asset profits / gains.
Article 20E of the Cyprus Income Tax Law (No. 118(I)/2002, as amended) (“Income Tax Law”) establishes a transparent, predictable and ring-fenced framework that is applicable to both legal entities and individuals, effective January 1, 2026 pursuant to which, there is a clearly defined 8% flat tax on crypto asset profits / gains, applicable to both individuals and legal entities.
With this new crypto tax regime, Cyprus has become one of the most appealing and tax efficient destinations for crypto investors and businesses in Europe, giving both individuals and legal entities a predictable and clearly-defined tax treatment, removing any uncertainty or inconsistency that existed in relation to crypto taxation.
Please find here a more in-depth information about the new 8% Crypto Tax Regime of Cyprus.
Under the new Crypto Tax Regime of Cyprus, a Cyprus Holding Company and/or a Cyprus International Trust are ideal vehicles for the holding of and investment into crypto assets, as well as for engaging into business activities related to crypto assets, since Article 20E offers a clear statutory 8% tax rate while preserving treaty access and Cyprus’ broader participation-exemption features for non-crypto investments.
Cyprus’s new crypto tax regime is a valuable addition to its overall reputation as a business-friendly jurisdiction, with competitive advantages that extend beyond crypto assets. The low corporate tax of 15% of Cyprus, its modern and transparent legal and regulatory framework that is based on common law and is compliant with international standards, the ease of setting up Cyprus companies and investment vehicles such as international trusts, makes Cyprus very appealing to fintech companies, crypto exchanges and any individuals or companies who wish to optimize their tax exposure and do business in Cyprus.
The compliance of Cyprus and adherence to CARF and DAC8 further strengthens the transparent reporting of crypto gains, providing predictability and stability in crypto investors, founders and businesses that choose Cyprus as their new place for business and tax residency.
How Paris Mavronichis & Co LLC can assist you
The new 8% crypto regime in Cyprus is a positive development in the direction of greater transparency; however, it also raises technical inquiries regarding classification, sourcing, loss utilization, and interaction with other sources of income. Investors and companies should prepare accordingly to navigate the new tax regime in order to remain compliant while optimizing their tax position.
We are capable of providing support in the following areas:
- Incorporate and set-up tax efficient and crypto friendly structures, such as a Cyprus Company, a Cyprus Holding Company and a Cyprus International Trust.
- Examining whether specific tokens, NFTs, or instruments are classified as “crypto assets” under Article 20E and MiCA.
- The interplay with Cyprus tax residency and double tax treaties, as well as the development of suitable holding, investment and trading structures for individuals, founders, institutions, and businesses.
- The preparation or evaluation of models that predict the effective tax rates under a variety of market scenarios, while taking under consideration the loss-ring-fencing rules.
- Supporting the creation of audit-ready records and accurate gain and loss calculations through the implementation of systems and proper documentation.
Our specialist lawyers in collaboration with our external accountant / auditor associates are available to offer personalized guidance under Cyprus and EU law if you wish to choose Cyprus as your new destination for your crypto-related business or crypto investments.
Please feel free to contact us if you have any question and to discuss how we can be of assistance to you.
DISCLAIMER:
PARIS MAVRONICHIS & CO LLC accept no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.
The material contained herein is provided for informational purposes only and does not constitute legal advice nor is it a substitute for obtaining legal advice from an advocate. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced advocate. PARIS MAVRONICHIS & CO LLC will be glad to assist you in this respect.
