Cyprus Tax Reform: What Changes in 2026

Cyprus Tax Reform 2026

Q&A: What changes for companies and individuals

Cyprus is introducing a package of tax changes effective from 2026 that impact corporate tax, dividends, crypto, personal income tax, deductions, stamp duty, and compliance. Below is a practical, high-level Q&A that summarises the changes and why they matter.

1) Corporate tax increase and carried losses

What changes?

From 2026 profits onwards, the Cyprus corporate tax rate increases from 12.5% to 15%.

What happens to losses?

Loss carry-forward extends to 7 years (previously 5).

Why it matters: This affects forecasting, effective tax rate planning, and how quickly businesses can use losses in growth or turnaround years.

2) Incoming dividends

Will SDC apply on foreign dividends received by a Cyprus company?

A targeted 5% Special Defence Contribution (SDC) can apply on foreign dividends only if both of the following tests are met:

• The payer earns more than 50% from passive or investment income; and
• The payer’s foreign effective tax burden is below 7.5% (i.e., below 50% of Cyprus’ 15% corporate rate).

If the tests are not met, no SDC applies. The income tax participation exemption on dividends remains, subject to conditions.

3) Outbound dividends

Is there any new withholding tax (WHT) when dividends are paid abroad?

Cyprus keeps its general no-WHT approach, but introduces defensive WHT on outbound dividends in specific cases:

• 5% WHT if the recipient is in a low-tax jurisdiction (below 7.5%).
• 17% WHT if the recipient is in an EU non-cooperative (blacklisted) jurisdiction.
• If both apply, the 17% rate prevails.

Why it matters: These measures are designed to limit abusive leakage and may affect group dividend routes and holding structures.

4) Crypto-asset taxation

What changes for crypto?

Gains from selling, exchanging, donating, or using crypto as payment are taxed at a flat 8% rate. This is relevant for both individuals and businesses. Mining acquisitions are excluded from this specific regime.

What about crypto losses?

Crypto losses are ring-fenced:

• Losses can offset only crypto gains of the same tax year.
• No carry-forward or carry-back of unrelieved crypto losses.
• No group relief for crypto losses.

Administration: Keep detailed transaction logs, wallet and exchange statements, cost basis, and EUR valuations at acquisition and disposal; use arm’s-length pricing for related-party transfers.

Start date: Applies for tax periods starting on or after 1 January 2026.

5) Incentives that remain

Cyprus keeps several core incentives (subject to conditions):

• Notional Interest Deduction (NID): up to 80% reduction in taxable income 
• IP Box: up to 80% exemption on qualifying IP profits, effective tax rate is 3%
• R&D super deduction: 120% deduction (20% uplift) for qualifying expenses for tax years 2025 through 2030.
• Exemptions for trading in securities (realised gains and unrealised revaluation gains).
• Tax-neutral treatment of realised and unrealised foreign exchange gains or losses on trading of securities.

6) Other company updates

Entertainment expenses

The annual deductible cap increases to EUR 30,000 (from EUR 17,086).

Corporate tax residency definition

Cyprus companies are treated as tax resident by incorporation, without needing to prove they are not resident elsewhere. Double tax treaties may still override where applicable.

7) Stamp duty

What happens now?

Stamp duty is abolished from 1 January 2026, removing cost and friction for several common transactions, including:

• Share purchase agreements (SPAs).
• Loan agreements and amendments.
• Share pledges.
• Intra-group reorganisations executed in Cyprus.

This can also reduce the cost of certain real estate-related agreements that previously attracted stamp duty.

8) Personal tax and SDC

What are the new progressive income tax bands?

From 2026, the progressive bands are:

• EUR 0 to EUR 22,000: 0%
• EUR 22,001 to EUR 32,000: 20%
• EUR 32,001 to EUR 42,000: 25%
• EUR 42,001 to EUR 72,000: 30%
• EUR 72,001 and over: 35%

Does the 50% salary exemption remain?

Yes. Cyprus continues to offer a 50% income tax exemption for 17 years for eligible new Cyprus tax residents, subject to conditions.

What changes for SDC on dividends and DDD?

• For Cyprus domiciled individuals, SDC on dividends drops to 5% (from 17%).
• Deemed Dividend Distribution (DDD) rules are abolished for profits from 2026 onward (transitional rules may apply for earlier years).

9) New deductions for families, housing and green spending

Family and student deductions (per parent)

• 1st child: EUR 1,000
• 2nd child: EUR 1,250
• 3rd+ child: EUR 1,500

Income thresholds (eligibility depends on the parent’s annual income and number of children):

• Up to EUR 100,000 for 1 to 2 children
• Up to EUR 150,000 for 3 to 4 children
• Up to EUR 200,000 for 5+ children

Housing and green incentives (per individual taxpayer)

• Mortgage interest or rent (primary residence): up to EUR 2,000
• Green investments: up to EUR 1,000
• Home insurance for natural disasters: up to EUR 500

10) Capital gains and real estate

What changes?

Lifetime Capital Gains Tax (CGT) exemptions increase to better reflect today’s property market values:

• General exemption: EUR 17,086 to EUR 30,000
• Agricultural land: EUR 25,629 to EUR 50,000
• Primary residence: EUR 85,430 to EUR 150,000

11) Employee stock options

Employee stock options

Gains from employee stock options can be taxed at a flat 8% rate under approved employer plans, subject to conditions such as minimum vesting, restrictions on transfer before vesting, plan pre-approval, and caps linked to salary and/or the issuer.

12) Anti-tax evasion and compliance rules

The reform introduces compliance-focused measures aimed at increasing transparency and reducing tax evasion, including:

• Mandatory tax return filing for Cyprus tax residents aged 25 to 70, even if they have no income (subject to any exemptions set by decree).
• Monthly rent of EUR 500 or more to be paid electronically (bank transfer or other recognised e-payment methods).
• Stronger enforcement tools for the Tax Commissioner to improve collection and curb evasion.

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Disclaimer

This article is a high-level summary for information purposes only and should not be treated as tax or legal advice. The application of the rules depends on facts and conditions that apply per client.