Cyprus Tax Reform 2026 — Key Changes for Businesses – FAQ

Cyprus tax reform 2026: Business Frequently Asked Questions (FAQ) on corporate tax, dividends, incentives and compliance

Cyprus has enacted a set of tax law amendments through a Tax Reform, effective 1 January 2026 that recalibrate—not overhaul—the corporate tax framework. This FAQ summarises the principal changes of the Cyprus Tax Reform for businesses: the move to a 15% corporate income tax, abolition of deemed dividend distribution for profits earned from 2026, a revised SDC regime (including targeted defensive withholding taxes on dividends to low-tax/blacklisted jurisdictions)-applies mostly to Cyprus-resident & domiciled individuals, and the full abolition of stamp duty. It also covers the extended loss carry-forward, updated R&D and stock-option incentives, and strengthened compliance and enforcement provisions. There is also a flat 8% tax on crypto disposals/gains, which makes Cyprus an attractive crypto destination by providing clarity.

The aim of this FAQ is to provide a clear, practical reference for entrepreneurs, investors, large organizations investing in the island, boards, and CFOs planning operations through Cyprus. We go deep in the reform, providing also with advise on how to deal with some of the changes.

1) What is the new corporate income tax (CIT) rate introduced by the Tax Reform and when does it apply?

15%. It applies to tax periods beginning on or after 1 Jan 2026. For periods that start in 2025, the 12.5% rate still applies to that whole period.

2) Are tax losses still available and for how long?

Yes. Unused tax losses carry forward for up to 7 years (extended from 5). Normal group relief rules continue to apply (subject to existing conditions).

3) Is the “deemed dividend distribution” (DDD) finally gone?

Yes, for profits earned from FY 2026 onward. Transitional rules still apply to profits of FY 2024–2025, so track retained earnings by year before paying dividends.

4) What happens to SDC on actual dividend income?

• Cyprus-resident & domiciled individuals: 5% SDC on actual dividends.
• Non-residents: outbound dividends generally unaffected by SDC (see Q5 for new WHT rules).
• Cyprus companies receiving foreign dividends: a targeted 5% SDC can apply only if (i) the payer earns >50% passive/investment income and (ii) the payer’s foreign tax burden is <7.5% (i.e., <50% of Cyprus’ 15% rate). Otherwise, no SDC applies. (Income tax participation exemption on dividends remains.)

5) Is there any withholding tax (WHT) on dividends paid abroad?

After the Tax Reform, Cyprus keeps its broad no-WHT stance, but introduces defensive WHT on outbound dividends:

• 5% if the recipient is in a low-tax jurisdiction (defined by reference to 50% of the Cyprus rate, i.e., <7.5%).
• 17% if the recipient is in an EU non-cooperative (blacklisted) jurisdiction.
  If both apply, the 17% rate prevails. These rules target abusive/leakage routes; treaty/EU destinations are generally unaffected.

6) Does SDC on rents still apply to companies?

No. SDC on rental income is abolished. Rental profits remain within CIT.

7) What about stamp duty on contracts, share transfers and loans?

Abolished in full from 1 Jan 2026. This removes cost and friction on SPAs, loan agreements, share pledges, addenda, intra-group reorganisations executed in Cyprus. Reduces the cost of such transactions.

8) Are there incentives for innovation and growth?

Yes—refreshed and extended:

• R&D super-deduction: 120% of qualifying R&D (including certain capitalised intangible development) for 2025–2030.
• Employee stock options: 8% flat taxation for gains under approved employer plans (high-level conditions include minimum vesting, non-transferability before vesting, plan pre-approval, and caps linked to salary/issuer).
• Cryptoasset disposals: business profits from crypto disposals taxed at 8%; losses are ring-fenced (only against crypto profits of the same year). More information on the crypto-tax below and in our article here.
• First-time listing costs (IPOs): deduction up to €300,000 for eligible costs on a regulated market (conditions apply).

9) What is the new cap on entertainment expenses for tax purposes?

The deductible cap increases to €30,000 per year (from €17,086).

10) How do the new anti-abuse and administration rules affect companies?

• Disguised distributions (e.g., shareholder benefits not at arm’s length) can be re-characterised as dividends, with SDC/WHT consequences where applicable.
• Filing & record-keeping: Mandatory annual e-filing applies to all Cyprus-incorporated or Cyprus-tax-resident companies (and to non-resident companies when they have Cyprus-source income), together with audited financial statements where required under Companies Law. Deadlines are set by the Tax Commissioner each year; provisional and final tax payments follow the statutory timetable. Keep full books and underlying evidence—invoices/contracts, bank statements, intercompany agreements/TP files (where applicable), dividend profit-pool certifications, and R&D/option/crypto documentation—for at least six years from the filing due date (longer if an audit, appeal, or enquiry is pending).

• Enforcement: the Tax Commissioner gains stronger tools, including the ability to freeze company shares where tax debts exceed set thresholds and temporarily seal businesses for serious non-compliance.

11) How should we time dividends around the transition?

Create two “profit pools”:

• Legacy pool (to FY 31.12.2025): distributions may still interact with old SDC/DDD transition mechanics.
• New pool (FY 2026+): no DDD applies; actual dividends follow the new SDC/WHT framework.

12) Does the reform change interest and royalties WHT?

Cyprus still has no general WHT on interest/royalties to non-residents, but defensive rules to non-cooperative/low-tax jurisdictions remain in place. Check counterparties and routing.

13) How does the 15% CIT interact with OECD Pillar Two?

The new 15% tax rate aligns with the global minimum, improving group ETR optics and potentially reducing top-up tax exposure under QDMTT/IIR/UTPR. You should still model 2026 outcomes with your global Pillar Two data.

14) We use a Cyprus HoldCo. What are the practical action points?

• Map dividend chains and ensure recipients are not in low-tax/blacklist jurisdictions.
• Tag retained earnings by year (pre-2026 vs 2026+) before declaring dividends.
• Refresh policies for R&D claims, option plans and entertainment costs; document substance to avoid disguised-distribution risks.
• Exploit stamp-duty abolition for debt refinancings, reorganisations and updates to intra-group documents.

15) We rent or lease property in Cyprus. Anything operational to note?

Yes. From 1 July 2026, rents over €500 must be paid via bank transfer/e-payment. Build this into lease admin and AP/AR processes.

16) Does the reform change Cyprus’ overall attractiveness?

Yes—positively for most cross-border structures. Cyprus now couples a credible 15% rate with cleaner dividend rules, no stamp duty, modern innovation incentives, a deep treaty/EU platform, and a strong professional services ecosystem. The new defensive WHTs are targeted and avoid penalising mainstream routes.

17) What should boards and CFOs do for FY 2026 planning?

• Finalise budget/ETR models at 15%; update forecasts.
• Segment profits and plan dividend timing.
• Screen counterparties for low-tax/blacklist risk.
• Paper R&D and option plans to meet conditions.
• Leverage stamp-duty abolition for document clean-up and financing.

18) How are cryptoasset gains taxed for companies?

Profits from the disposal of cryptoassets are taxed at a flat 8% (instead of the standard 15% CIT) when they form part of taxable business profits.

Key rules

• Scope: Net gains on disposals of qualifying cryptoassets (as defined in law).
• Rate: 8% on the crypto net gain for the year; all other profits remain at 15% CIT.
• Ring-fencing of losses:
  • Crypto losses may be set only against crypto gains of the same tax year.
  • No carry-forward/back of unrelieved crypto losses.
  • No group relief for crypto losses.
• Administration: Keep detailed transaction logs, wallet/exchange statements, cost basis and EUR valuations at acquisition/disposal; apply arm’s-length pricing for related-party transfers.
• Start date: Applies to tax periods starting on or after 1 January 2026.

Contact us

At Asterisk Corporate Services, we are a fully licensed & regulated service provider, speciaziling in Cyprus Company incorporations and ongoing maintenance (Accounting, Tax, Directorships etc). Contact us for more information and any assistance you may need on the tax reform and other matters at contact@asterisk.cy.

Disclaimer:

Above is for information purposes only and does not constitute any form of tax or other advise. Contact a professional before taking any decisions / action.