Cyprus tax reform 2026: what changes for businesses and individuals

What changes from 2026

Cyprus’s tax reform changes the rules for companies, investors and individuals. Corporate income tax is rising, the taxation of dividends is becoming more targeted, and reporting and transaction-substantiation requirements are tightening.

The main provisions took effect on 1 January 2026. Transitional rules apply to profits from earlier years and certain obligations, so the date income is received and the year the underlying profit arose must be considered separately.

Companies: corporate tax, losses and R&D

The corporate income tax rate increases from 12.5% to 15%. Businesses should use this as an opportunity to update their financial models, tax calculations and cash-flow forecasts.

The tax loss carry-forward period increases from five to seven years. This is particularly relevant to companies that invest in product development before becoming profitable.

Additional deduction for research and development

The additional 20% deduction for qualifying R&D expenditure has been extended to 2030. Together with the ordinary deduction, this gives a total deduction of 120% of the relevant costs. The expenditure must be recognised under IAS/IFRS and incurred exclusively for research or development.

The super-deduction does not apply to expenditure relating to assets covered by the IP Box regime. The choice of regime should take account of the costs involved and the nature of the intellectual property.

Transferring assets in exchange for shares

The tax basis of transferred assets must reflect their market value on the transfer date. This also applies to intangible assets such as software, IP and brands. Valuations and supporting documents should be prepared before claiming tax deductions.

Transfer pricing

The reform raises thresholds for categories of intra-group transactions. Exceeding a threshold affects the documentation required, but transactions below the threshold must also comply with the arm’s length principle.

Companies should compare the annual volume of transactions in each category with the applicable Local File and economic-analysis requirements.

Dividends: the 5% rate and transitional rules

For individuals who are both Cyprus tax residents and domiciled in Cyprus, the Special Defence Contribution (SDC) rate on dividends paid out of profits arising from 1 January 2026 falls from 17% to 5%. Individuals with non-dom status remain exempt from SDC, subject to the conditions of that regime.

Deemed dividend distribution (DDD) rules are abolished for profits arising from 2026. Transitional provisions continue to apply to profits from 2025 and earlier years.

When paying dividends, record the year in which the distributed profits arose. Dividends paid on the same date may have different tax consequences.

According to the presentation, dividends paid by 31 December 2031 out of profits arising up to and including 2025 may be subject to SDC at 17%. The transitional DDD rules and distributions between Cyprus companies also need separate consideration.

Foreign dividends

Dividends received by a Cyprus company from a foreign company are generally exempt from SDC. An exception may apply where both of the following conditions are met: more than 50% of the payer’s activities generate investment income, and the foreign tax burden is substantially lower than the Cyprus tax burden. The presentation refers to a benchmark below 7.5% and an SDC rate of 5% where the exception applies.

After non-dom status ends

For certain individuals with a domicile of origin outside Cyprus who become deemed domiciled after being resident for 17 of the previous 20 years, an alternative regime is available: a fixed payment of €250,000 for five years, covering dividends and interest income. The regime may apply for a maximum of ten years; an application must be submitted by 30 June of the first year of the five-year period.

Shareholders’ personal expenses and loans

Using company assets for personal purposes or transferring assets to a shareholder below market value may be treated as a hidden dividend distribution. The presentation specifies an SDC rate of 10% for such cases.

The tax consequences depend on the nature of the benefit, the recipient’s status and any applicable exceptions. In particular, it is important to distinguish hidden dividends from benefits in kind, which are taxed under income tax rules.

Interest-free and low-interest loans

Loans and certain financial benefits provided to directors, shareholders and their close relatives may give rise to notional income calculated at 9% a year on the outstanding balance. The calculation is made monthly, and the benefit is included in the individual’s income through PAYE.

For example, if a loan balance remains at €1 million, the notional income is €90,000 a year, or €7,500 a month. This is the amount of income subject to tax, not the tax itself.

Individuals: new tax bands and deductions

The tax-free portion of annual income increases to €22,000. Personal income tax is calculated progressively: each rate applies only to the corresponding portion of income.

Personal tax deductions

Deductions are available for children, a main residence, energy efficiency and home insurance against natural hazards. Eligibility depends on family circumstances, income levels and evidence of expenditure.

The presentation gives the following family-income limits: €100,000 for families with 0–2 children, €150,000 for those with 3–4 children, and €200,000 for those with five or more children. For a single taxpayer, the stated limit is €40,000. To claim the reliefs, spouses or partners must consent to the exchange of tax information.

Tax residence

The 183-day and 60-day rules remain in place. For the 60-day rule, the requirement not to be tax resident in another country has been removed; the remaining conditions concerning presence, activity and a permanent home in Cyprus need to be checked separately. Potential dual residence should be considered in light of the applicable tax treaty.

Employee share options and termination payments

A special 8% rate is introduced for qualifying employee share and option plans (ESOPs). The plan must be approved by the Tax Commissioner, and the minimum vesting period is three years from the approval date.

The exercise or acquisition price must be at least 50% of market value on the date the scheme is approved. The preferential rate applies up to twice the employee’s remuneration for the previous year and an aggregate limit of €1 million over any ten-year period. Any excess is taxed at ordinary rates. Restrictions apply to employees and directors who are connected with the company.

For options existing before 1 January 2026 whose three-year vesting period was not yet complete, the presentation states an application deadline of 30 June 2026. That deadline has passed; any current steps relating to a particular plan should be agreed separately.

Ex-gratia payments and joining bonuses

A special treatment applies to termination or retirement payments: the amount above €200,000 is taxed at 20%. Voluntary ex-gratia payments are not deductible from the employer’s taxable profit. Relocation allowances and signing bonuses are expressly treated as taxable payments.

Cryptoassets: the special 8% regime

Profits from the disposal of cryptoassets are taxed at 8% for both companies and individuals. Disposal includes not only a sale for cash, but also exchanging one cryptocurrency for another, gifting cryptoassets and using them to pay for goods or services.

Losses can be offset only against cryptoasset profits in the same tax year. They cannot be carried forward or used to reduce other types of income.

For example, a disposal profit of €220,000 and an exchange loss of €50,000 produce a net result of €170,000. Tax at 8% would be €13,600.

Mining income and staking rewards fall outside this special regime: the general tax rules applicable to the recipient apply instead.

Property and share disposals

The capital gains tax (CGT) rate remains at 20%. It may apply to the disposal of property in Cyprus and shares in companies whose value is linked to such property.

For relevant cases of indirect ownership, the threshold linking the value of shares to Cyprus property falls from 50% to 20%. However, an applicable double tax treaty may restrict Cyprus’s right to tax the transaction. Direct property ownership and chains of companies should be analysed separately.

Lifetime exemptions for individuals

These amounts are exemptions from taxable gains, not annual tax-free sale proceeds. Special conditions apply to main residences and restructurings.

The titles exemption and a future exit

The exemption for profits from the disposal of qualifying securities remains. However, Cyprus property exposure requires a separate CGT review. An income tax exemption cannot automatically be extended to every share disposal.

The presentation distinguishes rules and transitional provisions for shares on regulated and unregulated markets. Their application depends on the market, acquisition date and nature of the company.

Cross-border payments: WHT and expense restrictions

Special restrictions apply to payments to related companies in EU-listed non-cooperative jurisdictions (BLJs) and low-tax jurisdictions (LTJs).

The presentation defines LTJs by reference to a tax rate below half of Cyprus’s corporate income tax rate — that is, below 7.5%. Each payment requires a review of the related-party conditions, the recipient’s status and any applicable exceptions.

The EU list changes. For each transaction, check the current version and the statutory period for taking a jurisdiction’s status into account. The country list in the slides should not be used as a permanent reference.

Reporting, deadlines and electronic rent payments

The reform broadens registration and tax-return requirements and strengthens the Tax Department’s powers.

According to the presentation, registration requirements cover, among others, individuals aged 25 and over living in Cyprus and recipients of taxable income. For tax returns, it separately identifies residents aged 25–70, regardless of whether they have taxable income. Applicable exceptions and any current deadline extensions must be checked for the relevant year.

The tax assessment time limit is linked to the filing of a return or an amendment. The date a return is corrected therefore also affects the document-retention period.

Rent payments

From 1 July 2026, rent for property in Cyprus must be paid electronically, by bank transfer, card or another recognised method. For businesses, the payment method also affects whether the expense is deductible.

Stamp duty

Stamp duty is abolished from 2026. However, documents signed by at least one party in 2025 may remain subject to duty even if they are performed in 2026.

Penalties and enforcement

Penalties for late tax returns, failure to provide information and late payments have been revised. The amounts differ for individuals and companies and, for companies, may depend on turnover or assets. Temporary suspension of business activity is also possible following a prescribed notice procedure; some grounds apply from 2027.

What businesses and individuals should review

1. Update financial models. Factor in the 15% corporate tax rate, the seven-year loss carry-forward and available R&D reliefs.
2. Separate profits by year. Record the source of dividends and check transitional rules for profits arising before 2026.
3. Review group cash flows. Analyse the recipients of dividends, interest and royalties, WHT requirements and expense deductibility.
4. Document shareholder arrangements. Review loans, personal use of company assets and non-market-value transactions.
5. Check IP and ESOP plans. Confirm asset market values, relief conditions and required approvals.
6. Revisit personal tax calculations. Take account of the new tax bands, non-dom status, family deductions and residence rules.
7. Update the tax calendar. Check registration, returns, electronic rent payments and document-retention deadlines.

What continues to make Cyprus attractive

The presentation notes that key instruments remain available: IP Box, the notional interest deduction (NID), exemptions for qualifying dividends and securities, and the 50% and 20% employment income reliefs for eligible workers. Each relief has its own conditions.

The practical impact of the reform depends on the structure of income and transactions. An international group, an IT company and a private investor will have different priorities.