Cyprus remains the leading platform for holding, financing and IP owning structures

Cyprus attracted attention at the start of the year when it raised the corporate income tax rate from 12.5 to 15%, in line with the OECD global minimum, as a part of the most significant reform of its tax system this century. However, this change formed just one element of a much broader package of reforms.

While the 15% headline rate is still amongst the most competitive in the EU, the Cyprus government also preserved three of the most important tax-efficient regimes for international holding, financing and IP companies – the Cyprus IP Box, the Notional Interest Deduction (NID) and the Cyprus holding company framework. These remain central to investor confidence and long-term planning in Cyprus.

The Cyprus IP box

Cyprus retains the IP Box regime under which qualifying profit from qualifying intellectual property, including patented inventions and copyrighted software, benefits from an 80% exemption. This means that only the remaining 20% of qualifying profit is subject to tax, providing an effective rate of just 3% on income within the regime.

The IP Box framework follows the OECD ‘modified nexus’ approach, such that the benefit is proportionate to the qualifying development expenditure actually incurred by the Cyprus company. Cyprus therefore continues to support real innovation and genuine development activity within a recognised and internationally compliant framework. It has also extended the 120% deduction for qualifying research and development expenditure until 2030.

The Notional Interest Deduction (NID)

The NID is a critical feature for capitalising equity-funded structures – Cyprus holding companies, financing companies or special purpose vehicles (SPVs). It supports capital structure planning by international groups and can have a significant impact on tax outcomes

A Cyprus company funded with new equity rather than debt can claim a NID against its taxable profit, without any interest actually being paid. The deduction is capped at 80% of the taxable profit generated by the new equity, bringing the effective rate on qualifying profit down to just 3%.

Provided that the capital remains productively deployed, the NI can be claimed annually, with the reference rate being based on the 10-year government bond yield in the country where the capital is employed, plus a fixed premium. The Cyprus Tax Department publishes the applicable rates every year.

The Cyprus Holding Company Framework

The essential holding company framework that supports Cyprus as a regional platform remains in place, including the participation exemption that exempts dividends received from subsidiaries from corporate income tax, subject to conditions. Gains on the disposal of securities are also exempt, although the rules around property-rich entities have been tightened

It should be remembered that Cyprus imposes no withholding tax on dividends or interest paid to non-residents (excepting payments to companies in EU ‘blacklisted’ jurisdictions and, from 1 January 2026, to related companies in low-tax jurisdictions), and none on royalties if the IP right is used outside Cyprus.

Significant new benefits

Cyprus remains one of the most tax-efficient holding jurisdictions in Europe because its cornerstone features have remained intact after the Cyprus Tax Reform 2026. Investors and entrepreneurs need to look beyond the new headline tax rate to see the benefits that the full system has to offer.

It should also be noted that the Cyprus Tax Reform included several significant new benefits:

• Stamp Duty and the Deemed Dividend Distribution (DDD) rule were officially abolished.
• The loss carry-forward period was extended from five to seven years.
• The 120% deduction for R&D was extended.
• Special tax regimes were introduced for crypto-assets and employee stock options.
• A structured extension mechanism as introduced for the ‘Non-Dom’ regime.
• The 60-day and 183-day tax residency rules and the 50% employment income exemption remain unchanged.

Cyprus remains one of the most beneficial platforms worldwide for establishing holding, financing and IP companies due to its combination of low corporate tax rates, its extensive double taxation treaty network, its EU membership and compliance with international standards. The Cyprus Tax Reform 2026 has only confirmed its long-standing reputation for offering stability and reliability to businesses of all sizes.