Cyprus VAT Financial-Services Exemption 2026 — Scope, Edge Cases, and the AIF / Crypto Treatment
Article 135(1) of EU VAT Directive 2006/112/EC exempts most financial services from VAT — transposed in Cyprus by VAT Law 95(I)/2000. We walk through the scope (lending, insurance, FX, fund management, securities), the practical edge cases (crypto, NFTs, certain ancillaries), and partial-exemption mechanics.9 min read · By Nexora Cyprus editorial team · Reviewed by an ICPAC-registered Cyprus tax adviser engaged by Nexora
The exemption
Most banking + insurance + investment activities are EXEMPT (without right to recover input VAT) under Cyprus VAT Law 95(I)/2000 transposing Article 135 EU VAT Directive 2006/112/EC. Output: no VAT charged. Input: most input VAT on related costs not recoverable (subject to partial-exemption rules where the entity also has VATable activities).
1. What's exempt
Granting + negotiation of credit (loans, mortgages, credit facilities).
Management of credit (debt collection on own credit excepted).
Banking transactions — current accounts, deposits, payments, transfers, money handling.
Negotiation + transactions in currency, banknotes, and coins used as legal tender.
Transactions in shares, debentures, debt instruments, and other securities.
Management of special investment funds — Cyprus AIF management by an authorised AIFM.
Following the CJEU's Hedqvist ruling (Case C-264/14, 2015), exchanges of crypto-currency for traditional currency (and reverse) are treated as VAT-EXEMPT financial services. The CJEU reasoning: bitcoin operates as a means of payment, akin to currency.
Cyprus Tax Department applies the Hedqvist principle to BTC, ETH, and similar native-crypto. Custodial services + ancillary advisory may carry different VAT treatment case-specific.
3. NFTs and digital assets — case-specific
Pure-collectible NFT (digital art): typically a supply of electronic services, VATABLE at standard 19%.
Utility-NFT (access pass / in-game item): characterisation depends on the underlying right.
NFT representing a security or financial instrument: may benefit from securities exemption.
Approach: case-by-case VAT analysis at the project / business-model level.
4. AIF management — exempt
Management of qualifying special investment funds — including Cyprus-authorised AIFs managed by a CySEC-authorised AIFM — is EXEMPT from VAT under Article 135(1)(g) (transposed in Cyprus VAT Law). The exemption covers:
Portfolio management services.
Administration services.
Marketing services in some jurisdictions (case-specific).
NOT exempt: depositary fees (case-specific), audit fees, legal advisory.
If a Cyprus business has BOTH exempt + VATable activities, input VAT recovery is restricted. Two methods:
Standard method — overall taxable / total turnover ratio applied to overhead input VAT.
Special method — direct attribution where activities can be cleanly mapped (e.g., a fund-management firm with separate management vs platform-licensing income streams).
6. Edge cases founders ask about
Payment gateways: payment-services portion exempt; tech / platform fees may be VATable.
P2P lending: lending is exempt; ancillary advisory may be VATable.
Lending arrangements with crypto collateral: case-specific; Cyprus Tax Department typically applies financial-services exemption to the lending itself.
Brokerage commission on share sales: exempt (transactions in securities Article 135(1)(f)).
Family-office services: management of qualifying special funds exempt; bespoke advisory case-specific.
AuthorNexora Cyprus editorial teamReviewed byAn ICPAC-member accountant or Cyprus Bar Association lawyer engaged by NexoraLast updatedMay 2026
Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws change frequently. Consult a qualified Cyprus adviser for guidance specific to your situation. The information on this page is general guidance only and does not constitute legal, tax, accounting, immigration or financial advice. Specific advice should be obtained based on the facts of each case.