As we have briefly reported just before the holidays, Cyprus has undertaken the most extensive reform in its tax system in over two decades. The changes introduced, which have entered in to force as from 1 January 2026 (unless otherwise stated), are significant and touch almost all aspects of the taxation framework of the country.
Before we proceed with an in depth coverage of the changes introduced, it is important to consider the scope and objective of this reform. This can be distinguished between businesses and individuals. For the former, the overall purpose was to streamline the tax system and to narrow the gap between Cyprus entities, which are owned by foreign or non-domiciled persons and those which are owned by persons of Cyprus origin (domiciled persons). When it comes to physical persons the main objective of the reform was to look the tax system from a social perspective and to make it fairer and align it with the needs and personal circumstances of people. In addition, through the changes introduced people are incentivised towards greener technologies and accommodation of higher energy efficiency. Furthermore, common goals for both businesses and individuals from the tax reform are the enhancement of compliance with tax obligations and the reduction in the administrative burden of the tax system.
Instead of examining the changes by each separate tax law we elected to cover them by type of taxpayer, i.e. provisions which apply to businesses, those that apply to individuals and provisions of general application. We believe that this way of presentation gives a more complete and clearer picture of the changes introduced based on type of taxpayer.
Businesses
Corporation Tax
For what concerns companies, the main change relates to the increase of the Corporation Tax rate from 12.5% to 15%, bringing it in line with the tax applicable to Multinational and Large Domestic Groups (OECD Global Minimum Tax).
Tax Residency
As per an earlier amendment to the tax legislation, a company incorporated or registered in Cyprus for which the management and control (which is the primary factor for determining tax residency) is exercised outside Cyprus will be considered as tax resident of Cyprus, unless it is considered as tax resident in any other country (you can find more on this on our related newsfeed). A new provision introduced related to this, removes the condition for a company not to be tax resident in another state in order to be treated as a tax resident of Cyprus (unless a double tax treaty prevails and provides otherwise). So if a company is incorporated or registered in Cyprus, by default it will be considered as tax resident of Cyprus.
Entrepreneurs
The threshold for annual turnover for individuals to have an obligation to prepare audited accounts (Entrepreneurs) is increased from €70,000 to €120,000.
Dividends
As this topic concerns also shareholders as individuals, it is covered under the Individuals section below as well.
Special Contribution for Defense (SCD)
As it is known, dividends in Cyprus are only taxed under Special Contribution for Defense. They are exempt from Corporation Tax/Income Tax.
A very significant change introduced by the tax reform is the reduction of the rate of SCD on dividends from 17% to 5%.
So any companies not meeting the exemption criteria and individuals tax resident and domiciled in Cyprus will be subject to SCD on dividends received at the rate of 5%.
For what concerns the exemption criteria, dividends received by a Cyprus company are exempt from SCD, unless:
- The dividend paying company is engaged directly or indirectly by more than 50% in activities which lead to investment income; and
- The foreign tax on the income from which the dividends are paid is lower than 50% of the tax in Cyprus. There is a change in this condition in that the “lower than 50%” was previously “significantly lower”, but in practice there is no change as the interpretation of “significantly lower” was lower than 50%.
Deemed Distribution
Shareholders who are tax residents and domiciled in Cyprus will benefit from the complete abolition of the Deemed Dividend Distribution provisions on corporate profits generated after 1 January 2026.
Dividends paid from Cyprus
Special provisions for dividends paid to related companies in Blacklisted Jurisdictions (BLJ) and Low Tax Jurisdictions (LTJ) were updated in April 2025 and remained unchanged, except for the tax rate applicable to LTJ.
The rate of SCD on such dividends is as follows:
- BLJs: remains at 17% tax on the gross dividend.
- LTJs: is reduced from 17% tax on the gross dividend to 5%.
You can find more on this, including how BLJs and LTJs are defined, on our related newsfeed.
Definition of a dividend
The concept of dividend received is widened and will incorporate the below in addition to ‘normal’ dividends:
Company assets distributed to the shareholder, upon any of the following:
- Capital reduction
- Dissolution
- Liquidation
- Redemption of shares in open-ended or closed-ended collective investment companies (applies from 1 January 2031 onwards).
In such cases the amount of the dividend is the Market Value of the asset reduced by the amount of:
- capital actually paid to the company by the shareholder and not previously reduced; and
- CGT (if any) paid on such assets; and
- disguised dividend (if any) already recognised for such asset.
In case of increasing a company’s issued capital by capitalisation of distributable reserves the amount of increase is considered as dividend.
These provisions apply to Cyprus tax resident individuals and Cyprus tax resident companies (or Cyprus permanent establishments of foreign companies) receiving dividends from:
- Cyprus tax resident companies; and/or
- Non-Cyprus tax resident companies only in cases where a ‘normal’ dividend received would have been subject to SCD.
Disguised Dividends
The concept of disguised dividends is introduced for direct and indirect shareholders who are natural persons. A tax rate of 10% applies to the disguised dividend (instead of 5% on “normal” dividends).
It applies to the following cases:
a. Private use of a company asset by the shareholder (or an individual related to the shareholder). The amount of the disguised dividend is determined as follows:
- The initial market value of the asset used for personal use, multiplied by the percentage of personal use (in case the asset is not connected to the company’s business the percentage of personal use is 100%).
- The market value of the asset at the time of any increase in the percentage of personal use taking into account the increased percentage of personal use.
Reductions in the percentage of personal use do not result in any refund of SCD. No refunds of the SCD charged under the disguised dividend provisions are possible.
b. Assets disposed by the company to an individual shareholder (or an individual related to the individual shareholder) at a consideration which is below fair market value. The amount of the disguised dividend is determined by the following:
- The market value of the asset on the date of disposal less the amount of consideration.
- Any amount of disguised dividend already captured under the above private use provisions.
The disguised dividend provisions do not apply:
- to assets donated to the company from the private use shareholder (or from individual persons related to the individual shareholder);
- where the benefit in kind provisions apply;
- when the distribution is in the context of the following operations:
− Capital reduction
− Dissolution
− Liquidation
Companies distributing dividends, including disguised dividend distributions, are required to issue a certificate to each shareholder. This certificate must specify the amount of the dividend actually paid, any disguised dividend distribution, the SCD withheld by the company on these amounts, and the fiscal year during which the underlying profits were generated.
When a company transfers or distributes non-monetary assets, it is responsible for the payment of the SCD. The company may then recover this amount by charging it to the respective beneficiaries.
In case of bonus issue of shares, the amount capitalized will be treated as dividend.
Interest
Interest income will always be considered as active for companies (unless they fall under special categories, such as charitable or educational institutions) and will be subject to Corporation Tax. There will be no passive interest income anymore (subject to Special Contribution for Defence), depending on its source, activities of recipient, etc.
Allowable Expenditure
Interest Expense
Interest expense used to acquire or finance a 100% subsidiary in a jurisdiction included in the EU Blacklist will not be considered as an allowable expense for tax purposes.
Intangible Assets
The 120% super-deduction for research and development on intangible assets is extended until 2030. The additional deduction is claimed (fully or partially) at the election of the taxpayer. The deduction is available irrespective of the accounting treatment of such expenses (i.e. whether they have been capitalised or not). The super deduction can not be claimed on expenses related to a qualifying IP asset, for which the provisions of the IP Regime on any tax year. The super deduction can also not be claimed on expenses related to the acquisition of property, plant and equipment for which normal capital allowances can be claimed.
Amortisation of intangible assets with an indefinite life will be limited to 20 years.
In case of intangible assets acquired in exchange of new shares in the share capital of a company, the amortisation (capital allowance) will be calculated on a capital expenditure which cannot exceed the fair market value of the asset at the time of its acquisition.
Other Expenses
The amount of entertainment expenses allowed as tax deductible, increases from €17,086 to €30,000 (with the threshold being maintained to 1% of turnover).
A tax allowable deduction of up to €50,000 per year has been introduced for donations and contributions to cultural institutions.
A deduction equal to 200% of the Cost-of-Living Allowance made by an employer to its employees is granted provided certain conditions are met.
An amount up to €300,000 can be claimed with respect to the floating of shares in a recognised stock exchange (subject to conditions)
Permanent Establishments
The exemption available for profits of Permanent Establishments (PE) will not be available if the PE is in a jurisdiction, which is in the EU Blacklist.
Transfer of Tax Residency
For a company establishing its tax residency in Cyprus, the value of its assets for tax purposes should be adjusted (if necessary) to be equal to their market value at the time of becoming a tax resident of Cyprus.
Tax Losses
The period for carrying forward losses for tax purposes is extended from 5 to 7 years.
Transfer Pricing
The thresholds, for Local File obligations for transactions with related parties (known as ‘Controlled Transactions’) have been increased, to either exceed or should have exceeded based on the arm’s-length principle the following amounts:
- For goods: from €1,000,000 to €5,000,000.
- For financing transactions: from €5,000,000 to €10,000,000.
- For all other controlled transactions (services, intangible assets-royalties, other): from €1,000,000 to €2,500,000.
A clarification has been made that a director is related to a company if he/she alone or together with persons related to him/her hold voting rights of at least 50% with respect to decisions of the Board of Directors.
The General Anti-Abuse Rules (GAAR), previously applicable to corporate bodies, are now applicable to individuals as well.
Receivables of companies from shareholders and/or directors
The deemed benefit on receivables of companies from their shareholders and/or directors, calculated at 9% on the amount of the receivable, is extended to indirect shareholders. The benefit is assessed on a personal level and paid through the Pay As You Earn system, in case it exceeds, either alone or together with other sources of taxable income, the tax free threshold.
Assessment and Collection of Taxes
Directors of companies will continue to be liable for actions or omissions that have taken place during their term irrespective of whether by the time proceedings commence they would have already resigned.
In case of late notification for change of directors, their term is deemed to end as follows:
- the date of the actual change if the notification is submitted within 12 months from the date of the change.
- the late submission date of the previous year if the notification is submitted after the lapse of 12 months from the date of the change.
Partnerships are liable to submit tax returns.
The Tax Commissioner has been given the power to pledge the shares of a taxpayer which owes taxes exceeding €100,000, up to an amount that is double the tax due. The pledge (memo) will be registered with the Registrar of Companies, thus preventing the transfer of the said shares.
Powers have also been given to the Tax Commissioner to suspend the operations of a business which has not submitted a certain number of tax or other returns as from 1 January 2027, or failed to pay taxes and contributions including penalties exceeding €20,000, or has failed to issue or issued inaccurate invoices/receipts or deters the performance of tax audits from authorised officers.
Deadlines
The deadline for submission of tax returns by companies and individuals who prepare audited accounts (thereafter ‘entrepreneurs’) has been set on 31 January of the year that follows the subsequent year to the tax year (i.e.13 months from the end of the tax year), whereas previously it was on 31 March of that year .The deadline for the payment of any resulting tax has been amended as well in order to coincide with the deadline for the submission of the tax returns. Previously the deadline was on 1 August of the year subsequent to the tax year.
Companies incorporated or redomiciled to Cyprus after 30 June within a year, have an obligation to submit only one Provisional (temporary) tax return by 31 December of that year. Any resulting Provisional tax should be paid by the same date. The same holds for an individual who has started earning income, other than employment income, after 30 June.
The deadline for the submission of the Withholding Tax and Contributions Return, otherwise known as the Employer’s Return, has been shortened from 30 April of the year following the year of assessment to 31 March of that year.
Individuals
60 Days Tax Residency Scheme
The condition for an individual not to be tax resident in another state, is removed. The condition that he/she should not remain in any other state for one or more periods which in total exceed 183 days in the same tax year remains.
Non-Dom Regime
The Non-Dom Regime available to individuals over the first 17 years they become tax residents of Cyprus, may be extended beyond that period for additional two periods of 5 years each, with the payment of a lump sum SCD of €250,000 per period. Such a choice is irrevocable and binding. The extension of the regime is subject to the approval of the Tax Commissioner and for this reason an application must be made by 30 June of the first year of the five-year period. The lump sum is not refundable and any foreign tax suffered can not be deducted from it.
Individuals, the Non-Dom status of whom has expired, maintain such a domiciled status up until the completion of 20 years during which they are not tax residents of Cyprus.
Income Tax Return
All tax resident individuals from the age of 25 to 71 have an obligation to file a personal income tax return irrespective of whether they have income or not, while all tax resident individuals who have income are obliged to file a tax return irrespective of their age.
The deadline for submission of the Income Tax Return is the 31 July of the year following the year of assessment.
Income Tax Rates
For individuals, the tax-free threshold increases from €19,500 to €22,000, with tax brackets adjusted as follows:
- Up to €22,000: 0%
- €22,001 to €32,000: 20%
- €32,001 to €42,000: 25%
- €42,001 to €72,000: 30%
- Above €72,001: 35%
Allowances
Significant allowances have been introduced for individuals. Subject to income level ranging from €40,000 to €200,000 based on the number of dependants, the following allowances will be granted:
- Dependent children / university students; 1,000 per parent for the first child, €1,250 for the second child, and €1,500 for the third and subsequent children
- Interest paid on serviced loans used for acquisition of main residence or rent paid for main residence in Cyprus: €2,000 per spouse/partner/single person
- Green home investments for primary residence in Cyprus: €1,000 per spouse/partner/single person
- Acquisition of electric car registered in Cyprus: €1,000 per spouse/partner/single person
Insurance payment against natural disasters on residence: €500 deduction from taxable income.
Premiums paid to an approved pension fund or an annual life annuity upon retirement which is approved by the Tax Commissioner are allowable, capped at an amount equal to 10% of total taxable (i.e. not exempt) income, including profit from the carrying on of a business.
Premiums paid to a healthcare scheme, approved by the Tax Commissioner, should not exceed 2% of total taxable income, including profit from the carrying on of a business.
Employment Income
The following will be considered as employment income:
- Benefits given as an incentive for an individual to accept employment or the taking up of office which are granted prior to the individual commencing employment or taking up office.
- Ex gratia payments in relation to retirement (including early retirement) or termination of employment or office (including early termination).
- Benefits granted through an Early Retirement Scheme.
- Compensation for termination of employment or office when such compensation is not specifically provided for in the terms of employment of the individual (whether these are included in an agreement, regulations or other).
- Any amounts exceeding €200,000 related to such termination and retirement benefits mentioned above are taxed at a 20% rate (not deductible for employer).
- Any amounts adjudicated by a court with respect to income taxable under the aforesaid articles.
Dividend Income
SCD on actual dividend payments is reduced from 17% to 5%.
As mentioned above, under Businesses, the Deemed Dividend Distribution provisions have been abolished for corporate profits generated after 1 January 2026, so Cyprus tax resident and domiciled (‘taxable’) shareholders will only be subject to SCD on dividends actually declared to them.
Dividends paid to taxable shareholders out of corporate profits earned up to 31 December 2025 will be subject to SCD at the rate of 17%, unless they are paid after 31 December 2031, in which case the 5% rate will apply.
Interest Income
It will always be considered as passive and thus be subject to SCD, irrespective of its source, the scope based on which it is received by an individual or any other factor. It will be taxed at 17%, unless it is earned on certain government/local authority bonds or on specific listed securities in which case the rate of SCD is 3%. Based on the reform bonds are no longer restricted to the ones issued within the Republic of Cyprus but they can be of any other EU Member State.
Interest income will always be exempt from Income Tax.
Share option schemes
Benefits derived by employees and/or directors of a company from the granting of share options or shares (‘Rights’) as part of an incentive plan approved by the Tax Commissioner, are subject to a flat tax rate of 8%.
The 8% rate is only applied on the part of the benefit which does not exceed an amount equal to two times the remuneration from employment earned by the relevant employee/director in the year of vesting, excluding the benefit. Any excess amount of benefit is subject to tax at the general rates applicable to all other types of income.
The Rights must:
- Have a minimum vesting period of 3 years with the vesting period starting as from the date that the relevant scheme is approved by the Tax Commissioner; and
- Be non-transferable during the vesting period; and
- Relate to shares of the company/ employer or a company holding directly or indirectly shares to the aforesaid company and must carry the same rights as the ordinary shares of the issuer (with the exception of voting rights); and
- Have a minimum exercise/acquisition price not lower than 50% of the value of the shares of the relevant company at the time the scheme is approved by the Tax Commissioner.
The total benefit subject to the 8% rate cannot exceed the amount of €1,000,000 in a rolling 10-year period of employment. Any excess benefit is taxed at the general rates.
Moreover, the benefit does not apply in cases where the Rights are granted to a person which is considered as a related party to the company as per the relevant provisions of the Income Tax Law.
Existing incentive schemes should be sent to the Tax Authorities for approval within six months from the date of the law.
Provisions applicable both to businesses and individuals
General Anti-Abuse Rule (GAAR)
The GAAR has been amended to explicitly cover any transactions or arrangements which give rise to Corporation/Income Tax, irrespective of whether such tax arises in the hands of a company or a natural person (it was previously only intended for companies).
Special Contribution for Defense on rental income
Special Contribution for Defense on rental income is eliminated for both businesses and individuals.
Crypto Assets
Profits from the disposal of crypto assets will be subject to a flat 8% tax for both companies and individuals.
Disposal of a crypto asset includes the following:
- Sale
- Gift
- Exchange with another crypto asset
- Use as a means of making payments
This special mode of taxation does not apply for gains on crypto assets that were acquired through mining.
Losses arising from crypto assets can only be offset against gains from other crypto assets of the same person in the same tax year. Such losses cannot be carried forward or offset through group relief.
Investments in Collective Investment Schemes
As from 1 January 2031 any gain arising from the redemption of shares or units in a collective investment scheme of a corporate form, irrespective of its tax residence, should be considered as a dividend and not as a gain on disposal of securities as it has been the case so far.
As such it will be subject to SDC at the rate of 5% when paid to Cyprus tax resident and domiciled individuals.
Any capital gains tax levied on the redemption can be deducted from the gain arising from the transaction.
Capital Gains Tax
The interpretation of shares that directly or indirectly own immovable property has been amended to include shares which derive 20% of their value from immovable property situated in Cyprus. Previously the percentage stood at 50% of the value.
The exemptions on disposal of immovable property have been increased as follows:
- General exemption for a natural person has increased from €17,086 to €30,000
- Primary residence exemption has increased from €85,430 to €150,000
- Agricultural land exemption has increased from €25,629 to €50,000
The exemptions apply to physical persons only.
The exemption on disposal of shares listed on the Emerging Companies Market of the Cyprus Stock Exchange has been replaced by an exemption applying to shares listed on a regulated marked of a recognized Stock Exchange.
An exemption has been introduced on proceeds on disposal of shares not listed on a regulated market provided those do not exceed €50,000 per annum.
Certain provisions have been introduced for exchange of immovable property.
Penalties for late submission have been materially increased ranging from €250 to €500 for individuals and €1,000 to €2,000 for companies. There is also a 5% surcharge for late payment of any liability (more than 60 days).
Assessment and Collection of Taxes
The deadline to submit an objection is extended to 60 days. It was previously by the end of the month following the month in which the notice is given. Objections can now be submitted electronically.
The statute of limitation remains 6 years but the count starts from the date of the submission of the tax return or the revised tax return and not from the end of the tax year, as it was the case so far.
Books and records must be retained for a period of six years from the deadline for submission of the tax return or the revised tax return or from the date of submission of the tax return or the revised tax return, whichever is later. Where a tax audit commences on the last year of the six-year period the retention period is extended until the completion of the audit or until one year from the date of commencement of the audit, whichever is earlier.
Tax Refunds
Interest on refunds, depending on their nature, accrues as follows:
- four months from the deadline for submission of the tax return or the revised tax return or the date of submission of the tax return or the revised tax return, whichever is later.
- four months from the date the Tax Commissioner certifies the refund.
The Tax Authorities have the right to deduct any overdue tax liabilities from any refunds and interest thereon before making any payment to the taxpayer.
Payment of Rent
Rent can only be paid through bank transfer, credit or debit card or any other recognised electronic payment method, but not with cash or any other method.
Stamp Duty
Stamp Duty has been eliminated. You can find more on this on our related newsfeeds.
In Conclusion
The Tax Reform represents the most significant change in the tax regime of Cyprus in more than 20 years. Taxpayers need to carefully examine the provisions of the Tax Reform to assess whether and to what extent the amendments have an impact on their tax affairs and position. Following that, any necessary actions to ensure full and timely compliance with the new rules and the overall tax system should be taken, while maintaining the efficient arrangement of tax matters.
The information presented in this newsfeed is purported to increase the readers’ general awareness of the Tax Reform introduced in Cyprus in December 2025.Under no circumstances the information presented here can substitute professional advice and specialized solutions based on each individual needs and circumstances.
We are always at your disposal to discuss such needs and circumstances and any other concerns or queries you may have about the Tax Reform or any other tax matter related to Cyprus.
