Recent Tax Reform
The Cyprus Parliament has recently approved several legislative bills forming part of a comprehensive Tax Reform Program. The approved measures introduce wide-ranging changes to the existing tax framework and apply to profits and income earned from 1 January 2026 onwards. The reform is intended to update the tax system, strengthen compliance, and align Cyprus with international standards, while maintaining its attractiveness for businesses and investors.
International Tax Hub
Cyprus has traditionally been an attractive international tax-planning jurisdiction due to a combination of factors: a competitive tax framework, EU membership, and long-standing legal and economic stability.
From a tax perspective, Cyprus has for decades offered a comparatively low corporate income tax rate (historically 10%, later 12.5%), together with a highly favorable Participation Exemption Regime. Dividend income, capital gains on shares (other than real-estate companies), and most interest income have generally been exempt from tax, making Cyprus particularly appealing as a holding, financing, and investment platform.
In addition, Cyprus has an extensive Double Tax Treaty network, covering many European, Asian, and emerging markets, which has facilitated efficient cross-border structuring.
Key Corporate Tax Changes
With the introduction of the new legislative measures, the Corporate Income Tax (CIT) rate increases from 12.5% to 15%, bringing Cyprus into line with the OECD and EU minimum standards. At the same time, the tax loss carry-forward period is extended from 5 to 7 years, providing businesses with greater flexibility in managing and offsetting losses.
In addition, the Deemed Dividend Distribution (DDD) regime will be abolished for profits earned as from 1 January 2026, significantly simplifying profit retention and dividend distribution planning. The DDD is an anti-deferral mechanism under which undistributed profits of a Cyprus tax-resident company were treated as if they had been distributed as dividends, even where no actual dividend was paid. Shareholders could be taxed without receiving any cash, which often created liquidity issues.
Cyprus also introduces a 20% super-deduction for R&D expenses for tax years 2025–2030. This deduction is subject to certain statutory exceptions and limitations.
Changes Affecting Individuals
The Special Defence Contribution (SDC) on dividends received by Cyprus-domiciled tax resident individuals is reduced from 17% to 5%. In addition, the SDC on rental income will be abolished, resulting in a lower tax burden on property income. Stamp duty is also abolished this year, further reducing transactional costs and administrative complexity for businesses and individuals.
Employee and director share-based payments in Cyprus may benefit from a flat8% tax rate, provided strict conditions are met. The 8% rate applies only up to an amount equal to twice the employee’s annual remuneration (excluding the benefit); any excess is taxed at normal income tax rates (up to 35%). The regime is mainly aimed at start-ups and scale-ups to help attract talent.
Gains from cryptocurrency disposals is also subject to tax at a flat 8% tax rate, providing clarity on the taxation of digital assets. Dividend income, capital gains on shares, and most interest income remain tax-exempt, thereby preserving Cyprus’ attractiveness for private investors.
At the same time, all tax-resident individuals aged over 25 will be required to file an annual income tax return, irrespective of whether they have taxable income, significantly expanding personal compliance obligations.
Non-Domiciled Residents
Cyprus determines personal tax residency based on physical presence, using two alternative tests. An individual is considered tax resident if they spend 183 days or more in Cyprus during a calendar year. Alternatively, under the 60-day rule, an individual may qualify as tax resident with a minimum presence of 60 days, provided (i) they are not tax resident elsewhere; (ii) do not spend more than 183 days in any other country, (iii) maintain a permanent residence in Cyprus, and (iv) have an economic connection to Cyprus (e.g. employment, business activity, or a directorship).
Once tax residency is established, Cyprus offers an additional layer of attractiveness through its Non-Domicile Regime (NDR). Individuals who are tax resident but not domiciled in Cyprus can benefit from broad exemptions from the SDC on certain types of passive income, such as dividends and interest.
As part of the reform, Cyprus is introducing a special optional tax regime for Non-Domiciled Residents, aimed in particular at high-net-worth and internationally mobile individuals. Eligible taxpayers may opt for: (i) a one-off lump-sum tax payment of €250,000, covering a 5-year period, or (ii) a fixed annual SDC of €50,000, payable irrespective of the level of income earned (subject to eligibility conditions).
This regime is designed to provide tax certainty and administrative simplicity, strengthening Cyprus’ competitive position among European relocation destinations.
Enhanced Powers of Tax Authorities
The Cyprus Tax Commissioner is granted expanded powers to request information, including the ability to override banking secrecy and professional confidentiality.
In addition, where a taxpayer refuses, delays, or fails to settle tax debts exceeding €100,000 for more than 30 calendar days after the payment due date, the tax authorities may take enforcement measures, including seizing shares owned by the taxpayer as security and freezing the taxpayer’s assets until the outstanding liabilities are settled.
Key Takeaway
The enacted legislation constitutes the most significant tax reform in Cyprus in the past 20 years, aimed at broadening the tax base, strengthening compliance, and aligning the system with international standards while preserving key incentives for businesses and private investors.
The above overview provides only a summary of the new tax measures; while numerous additional changes have been adopted, the measures highlighted above are the most relevant from an international tax-planning perspective.
Now that the new rules are in force, individuals and companies with Cyprus connections should reassess their structures and activities, review their compliance position, and consider any necessary adjustments from a tax-planning and investment perspective.
For those who are not yet active in Cyprus, do these reforms perhaps require a closer look at Cyprus as part of your broader international business, investment, or relocation strategy?