The Cyprus parliament, the House of Representatives, approved a comprehensive tax reform package on 22 December, which covers corporate income tax, the special defence contribution (SDC), capital gains, personal income tax, real estate and crypto assets, as well as strengthening tax administration and enforcement.
The amending laws were published in the Official Gazette on 31 December and most measures were brought into effect as of 1 January 2026.
The reform amounts to a fundamental restructuring of the Cyprus tax framework in line with current economic conditions and international standards, while also seeking to maintain Cyprus’ position as a competitive and attractive business and investment hub.
Corporate Income Tax
From 1 January 2026, the corporate income tax rate increases from 12.5% to 15%, in line with the OECD’s global minimum corporate tax rate. However, partial or full exemptions for certain types of income remain unchanged and Cyprus continues to serve as one of the most competitive corporate tax jurisdictions in the EU.
The definition of a Cyprus tax resident company is expanded to include companies that have been incorporated under the Cyprus Companies Law – the ‘incorporation test’ ¬– unless a double tax treaty provides otherwise. Companies that have transferred their registered office to Cyprus will be considered as incorporated in Cyprus.
Other significant changes include:
- The period in which tax losses can be carried forward is extended from five to seven years.
- The exemption for profits of a foreign permanent establishment does not apply if the foreign permanent establishment is situated in a jurisdiction that appears on the EU blacklist of non-cooperative third countries for tax purposes.
- The rule providing that the tax basis of assets when a company establishes tax residency in Cyprus should equal their fair value is expanded to cover transfers from non-EU countries as well as from EU member states.
- The 120% super-deduction for qualifying research and development (R&D) expenditure on intangible assets is extended until 2030. A 120% super deduction is also introduced for qualifying expenditure on machinery and installations used for agricultural or livestock production.
- The maximum deductible entertainment expenses allowance is increased from €17,086 to €30,000, subject to a cap of 1% of the gross income of the business.
- An 8% flat income tax rate is introduced on gains arising from crypto asset transactions, as well as on share-based remuneration under approved employee stock schemes.
- Interest income earned by or accruing to companies will be subject to the provisions of the Income Tax Law but will be exempt from the Special Defence Contribution.
Special Defence Contribution (SDC)
A key change is the abolition of automatic shareholder-level taxation through the deemed dividend distribution (DDD) mechanism in respect of profits earned by Cyprus tax resident companies after 1 January 2026, allowing full retention of profits.
For shareholdings held on or before 31 December 2025 where there is an actual dividend payment to a non-Cyprus tax resident or a Cyprus tax resident non-domiciled individual that corresponds to profits that were previously taxed under DDD, the recipient will be entitled to a refund of the tax paid under DDD rules.
For actual dividends distributed out of post-2026 profits, the SDC rate is reduced from 17% to 5%, significantly lowering the tax cost of distributing new profits for Cyprus tax resident individuals receiving dividends from Cyprus tax resident companies and non-Cyprus tax resident companies. However, dividends received from Cyprus tax resident companies out of profits earned up to 31 December 2025 will remain taxed at 17% if the dividend is received on or before 31 December 2031.
With the abolition of DDD, a new anti-avoidance rule is introduced in respect of ‘concealed dividends’. Where value is transferred to shareholders or connected persons in a way that effectively represents a distribution of profits, an increased 10% rate of SDC applies.
A 5% withholding tax is introduced on dividends that are paid to companies that are resident in jurisdictions classified as low tax to align with EU and OECD anti-avoidance standards.
The SDC tax previously imposed on rental income is abolished, leaving rental income taxable solely under income tax rules.
Capital Gains Tax and Stamp Duty
To reflect the significant appreciation of real estate values, the lifetime exemptions available under the Capital Gains Tax (CGT) regime have been increased as follows:
- The general lifetime exemption applying to qualifying disposals subject to CGT is increased from €17,086 to €30,000.
- The lifetime exemption for disposals of agricultural land is increased from €25,629 to €50,000.
- The lifetime exemption for the disposal of a primary residence is increased from €85,430 to €150,000.
To address structures where Cyprus real estate is held through corporate vehicles, the threshold for classifying property rich companies is reduced from at least 50% of immovable property value against the market value of the shares down to at least 20%.
To address under-valuation in indirect real estate disposals, when shares of property rich companies are sold the consideration for CGT purposes will be assessed by reference to the underlying fair market value.
To improve efficiency, stamp duty is abolished for most transactions, excluding limited exceptions such as real estate, banking, insurance, as from 1 January 2026.
Individual Income Tax
The Cyprus Tax Reform increases the tax-free threshold for individuals to €22,000 from 1 January 2006 and the progressive income tax bands are revised upwards, so that the top rate of 35% applies only on income exceeding €72,001. It further introduces targeted deductions linked to household income and family composition which apply only where the relevant income thresholds are met.
The special regime for foreign pension income is updated so that Cyprus tax residents receiving pension income from abroad may continue to elect annually between taxation under the normal progressive income tax rates or a flat 5% tax on pension income exceeding €5,000 per year.
For employment termination payments, a €200,000 tax-free amount will apply with any excess taxed at a flat rate of 20%.
The ‘60-day’ and ‘183-day’ rules under Cyprus’ individual tax residency framework remain unchanged, but the previous criterion under the 60-day rule, which required the individual to “not be a tax resident in any other state”, has been removed.
The General Anti-Abuse Rule (GAAR) of the Income Tax Law has been amended to explicitly cover any transactions or arrangements that give rise to income tax, irrespective of whether such income tax arises in the hands of a company or a natural person.
Tax Administration, Reporting and Enforcement
The reform significantly expands filing obligations. All Cyprus tax residents aged 25 and above must submit an annual income tax return, partnerships are brought into the mandatory filing net, and corporate tax return and payment deadlines are aligned.
As from 1 January 2026, documentation supporting tax returns and books and records are required to be kept for a period of six years after the submission deadline or the submission date, whichever is later, rather than the end of the tax year.
The deadline for the submission of the income tax return for legal persons and individuals who have an obligation to prepare accounts is changed from 31 March of the year after the following year of the year of assessment, to 31 January.
The payment of the final tax under the self-assessment method for legal persons and individuals who have an obligation to prepare accounts is changed from 1 August of the year after the following year of the year of assessment, to 31 January.
The submission deadline for the yearly Employers’ return (T.D.7) is changed from 28 February of the year following the year of assessment, to 31 March.
The gross income threshold for mandatory submission of audited accounts by individuals is increased from €70,000 to €120,000.
All partners registered for tax purposes must submit returns disclosing their share of partnership income. In the case of alternative investment funds or mutual funds, only the administrator has the obligation to file a return.
To increase transparency in rental transactions, any rent payments for immovable property located in Cyprus must be made exclusively through bank transfer, credit or debit card, or by any other recognised electronic payment method. Landlords are prohibited from accepting rent payments by any other means.
To prevent directors evading responsibility, a company director now remains fully liable for any acts or omissions committed during their term in office, even if they had been removed from the Register of Directors and Secretaries before any administrative or judicial actions commenced.
The Tax Commissioner is also granted enhanced powers to address serious and repeated non-compliance.
Implications of the Cyprus Tax Reform 2026
The Cyprus Tax Reform provides a decisive modernisation of the tax system. Although the corporate income tax has increased to 15%, Cyprus remains among the more competitive jurisdictions in the EU with a strong reputation as an attractive destination for corporate relocation and headquartering.
As a full EU member state, Cyprus has implemented all the relevant EU directives in respect of corporate taxation, including the EU Parent-Subsidiary Directive and the Interest and Royalties Directive. In particular, the Cyprus tax regime offers the following benefits:
- Dividends received by a Cyprus tax resident company from a Cyprus subsidiary are fully exempt from taxation in Cyprus, while dividend income received from an overseas participation is exempt from tax unless:
- More than 50% of the overseas paying company’s activities give rise to investment income; or
- The foreign corporate tax rate on the income of the paying company is less than 50% of the Cyprus tax rate of the company receiving the dividend, an effective tax rate lower than 7.5%.
- Cyprus holding companies benefit from reduced or zero withholding tax rates when receiving dividends from subsidiaries, either via Cyprus’ extensive network of over 65 double tax agreements (DTAs) or via the EU Parent-Subsidiary Directive (PSD).
- Cyprus does not impose any withholding tax on dividends paid to non-residents, irrespective of their country of residence or the existence of a DTA between Cyprus and their jurisdiction.
- A unilateral tax credit is applied for taxes paid abroad by a Cyprus company or its subsidiaries if the income is subject to the Cyprus tax. Cyprus DTA provisions may also be utilised if they are more beneficial than the tax credit.
- The Cyprus IP Box regime provides an 80% deduction on qualifying profits from qualifying patents, copyrighted software and other IP assets, which can reduce the effective tax rate to as low as 3% and remains fully in force under the nexus approach.
- The Cyprus Notional Interest Deduction (NID) allows companies to claim a notional deduction on taxable profits when raising capital via new equity, offering a tax benefit similar to interest deductions on debt financing. The NID deduction is capped at 80% of taxable profits from new equity before applying NID, which can reduce the effective tax rate to as low as 3%.
- No capital gains tax (CGT) is applied on the disposal of securities except for ‘property-rich’ companies.
Cyprus’s diverse residency options, combined with its favourable living conditions and attractive tax incentives, position it as an appealing destination for both expatriates and investors.
The Permanent Residency Programme (PRP), known as the Cyprus Golden Visa, offers non-EU residents both ‘Fast Track’ and ‘Slow Track’ options. The ‘Fast Track’ route allows applicants to obtain permanent residency status within approximately two months by making a minimum investment of €300,000 in qualifying assets such as real estate or local businesses. This status is valid for life and can be passed on to dependants.
The ‘Slow Track’ option is available for individuals with a secure annual income sufficient to support a good standard of living in Cyprus, allowing them to reside in the country while their application is processed over 12 to 18 months. Applicants must provide documentation showing a guaranteed annual income of at least €50,000 from abroad (an additional €15,000 for each dependent spouse and €10,000 for each minor child).
The Self-Sufficient Temporary Residence Permit is an annually renewable option that permits individuals and their qualifying dependants to live in Cyprus as visitors without employment rights. Applicants must demonstrate a minimum annual income and possess a residential property in Cyprus.
The Cyprus Tax Residency Programme offers preferential tax incentives for both EU and non-EU nationals. For an individual to be considered as a tax resident in Cyprus, they must spend more than 183 days in a year in Cyprus. Cyprus further offers a ’60-day Rule’ regime, which enables foreign nationals to enjoy Non-Domiciled Tax Residency status by spending only 60 days in Cyprus within a calendar year, instead of 183.
The tax benefits include no tax on worldwide dividend and interest income for non-domiciled individuals for 17 years, no tax on gains arising from the disposal of investments (shares, bonds, etc), no estate duty, inheritance, wealth or gift taxes, and no tax on retirement gratuities and access to a special tax regime on foreign pension income.
Conclusion
From a planning perspective, the Cyprus Tax Reform 2026 establishes a clear dividing line. Businesses and individuals should assess their structures and strategies under the revised regime and review their compliance to ensure that it is aligned with the new enforcement framework.
To discuss how the Cyprus Tax Reform 2026 may affect your corporate or personal tax position, or to re-evaluate your structuring and planning options under the new rules, please contact Sovereign Trust (Cyprus) to arrange a consultation.
