Cyprus Tax Reform: The Complete Guide (Businesses & Individuals)

Cyprus Tax Reform 2026 — What You Need to Know for Businesses and Individuals

Cyprus has enacted a measured set of tax law amendments that recalibrate the corporate framework, update personal taxation, modernise dividend/Special Defense Contribution (SDC) and defensive Withholding Tax (WHT) rules, abolish stamp duty, and strengthen administration. This guide consolidates the enacted provisions—clearly and accurately—for boards, entrepreneurs, CFOs, HR/payroll teams and private taxpayers.

Below we have tried to touch upon the key changes of the Cyprus Tax Reform, in a concise, short and understanble manner. We have also published a FAQ, specialized on changes which impact businesses. You can also find the legislation as published in the Cyprus Government Gazette here.

Effective date: 1 January 2026 (generally for tax periods starting on/after this date)

Quick view (what changed):

• Corporate income tax (CIT): 15% (from 12.5%).
• Deemed Dividend Distribution (DDD): abolished for profits earned from 2026 (transitional rules for 2024–2025 profits).
• Dividends & SDC/WHT: streamlined SDC; defensive WHT only for low-tax/blacklisted endpoints.
• Stamp duty: abolished in full from 1 Jan 2026.
• Incentives: R&D 120% (2025–2030), 8% stock options (approved plans), 8% crypto gains (ring-fenced).
• Loss carry-forward: 7 years.
• Individuals: tax-free €22,000, revised bands; family/housing/“green” deductions; mandatory filing from age 25.
• Administration: annual e-filing, six-year record-keeping, bank data reporting, stronger enforcement; e-payment for rents >€500 from 1 Jul 2026.

Corporate taxation

CIT at 15%

Applies to tax periods beginning on/after 1 January 2026. Aligns Cyprus with the 15% global minimum while preserving the participation framework and incentives.

Dividends: DDD abolished; SDC/WHT modernised

• Deemed Dividend Distribution (used to apply to Cyprus Residents and Domiciled individuals): abolished for 2026+ profits.
  Transitional: 2024–2025 profits may still interact with legacy DDD/SDC mechanics—track retained earnings by year.
• SDC on actual dividends (recipient rules):
  • Cyprus-resident & domiciled individuals: 5% SDC on dividends received.
  • Non-residents: no SDC.
  • Cyprus companies (inbound dividends): 5% SDC applies only if both:
    1. the payer’s income is >50% passive/investment, and
    2. the payer’s foreign tax burden <7.5% (i.e., <50% of Cyprus’ 15% rate).
       Otherwise, no SDC; income-tax participation exemption on dividends is preserved.
• Outbound dividend WHT (defensive only):
  • 5% where the non-resident recipient is in a low-tax jurisdiction.
  • 17% where the recipient is in an EU non-cooperative/blacklisted jurisdiction.
  • If both apply, 17% prevails.
  • Recharacterisation: certain capital reductions and in-kind distributions to shareholders can be treated as dividends for SDC/WHT purposes.

Other core corporate measures

• Loss carry-forward: 7 years (from 5).
• Entertainment expenses cap: €30,000 deductible limit.
• First-time listing (IPO) costs: deduction up to €300,000 on regulated markets (conditions apply).

Innovation & growth incentives

• R&D super-deduction: 120% of qualifying costs for 2025–2030 (including specified capitalised development of intangibles; documentation required).
• Employee stock options: gains under approved employer plans taxed at a flat 8% (eligibility conditions and caps apply).

Crypto taxation — how it works (and why it helps crypto businesses)

What’s new: Profits from disposals of cryptoassets that form part of a company’s taxable business profits are taxed at a flat 8% (not the standard 15% CIT). Losses are ring-fenced to crypto gains of the same year (no carry-forward and no group relief).

Why this helps crypto companies (in short):

• Lower, predictable effective rate on qualifying gains.
• Regulatory clarity on crypto disposals, aiding audit readiness and internal controls.
• Clean separation of crypto P&L via ring-fencing, improving governance and risk tracking.

Operational note: Keep detailed trade logs, wallet/exchange statements, cost-basis evidence and EUR valuations at acquisition and disposal.

In addition, if you are developing an IP in the space, Cyprus Company can take advantage of the IP Box Regime and Notional Interest Deduction and significantly reduce the effective tax rate of your operations.

You can read more information on the new Crypto Tax in our dedicated article here.

Stamp duty abolished

From 1 January 2026 there is no stamp duty on contracts, share transfers, loan agreements, pledges and most instruments executed in Cyprus—removing friction and cost from M&A, intra-group funding, corporate housekeeping, and agreements in general.

Non-residents: interest & royalties

Cyprus retains no general WHT on interest and royalties paid to non-residents. Defensive rules are limited to low-tax/blacklisted situations. For dividends, see the defensive WHT rules above.

Personal income tax

• Tax-free threshold: €22,000.
• Progressive bands: 20% (€22,001–€32,000), 25% (€32,001–€42,000), 30% (€42,001–€72,000), 35% (>€72,001).
• Family deductions (per child/student up to age 24): €1,000 (1st), €1,250 (2nd), €1,500 (3rd+), subject to income caps (indicatively €100k for 1–2 children, €150k for 3–4, €200k for 5+).
• Housing & “green” deductions: up to €2,000 for rent and for interest on serving home loans; €1,000 for specified green/home-energy/EV items (subject to income caps); €500 for home insurance against natural catastrophes.
• Mandatory filing: annual tax return submission for all natural persons from age 25.
• Operational: from 1 July 2026, rents over €500 must be paid via bank/e-payment.

Administration, compliance & enforcement

• Annual e-filing:
  • All Cyprus-resident or incorporated companies must file annually;
  • Non-resident companies file where they have Cyprus-source income;
  • Audited financial statements where required by Companies Law.
• Record-keeping: maintain books and supporting evidence (invoices, contracts, bank statements, intercompany documentation/TP files where applicable, dividend profit-pool certifications, R&D/option/crypto files) for at least six years from the filing due date (longer if an audit/appeal is pending).
• Bank data reporting: The tax commissioner will have the powers to obtain banks report where required (from Cyprus banks).
• Enforcement tools: ability to freeze company shares for significant overdue tax debts; power to seal businesses in specified non-compliance cases; a further 5% levy may apply if payment remains two months past due.

Capital Gains Tax (CGT)

The CGT law was amended to increase thresholds/exemptions, including:

• CGT-free threshold: €30,000.
• Agricultural plots: exemption up to €50,000 (subject to conditions).

Scope reminder: Cyprus CGT targets Cyprus-situated immovable property and shares of companies deriving value from such property; the above are enacted amount updates within that framework.

Why Cyprus remains a strong business centre

• EU jurisdiction, common-law system and an extensive double-tax treaty network.
• No stamp duty from 2026—faster, cheaper execution for M&A, intra-group financing, share transfers and corporate updates.
• Modernised dividend rules: DDD abolished for 2026+ profits; zero WHT in mainstream routes (defensive WHT only for low-tax/blacklisted endpoints).
• Targeted incentives: R&D 120%, 8% stock-option regime, 8% crypto—well-suited to tech, fintech and scale-ups.
• Depth of professional services: proven expertise in accounting, audit, tax and corporate administration to support international operations.
• IP Box Regime & other tax benefits (NID, 50% exemption etc) are still in place and can reduce effective tax rate of businesess significantly, while still operating in Europe. 

What international groups should do now

1. Map dividend flows: avoid low-tax/blacklist endpoints to keep 0% dividend WHT; where unavoidable, model 5%/17% leakages.
2. Time distributions: profits up to 2025 can still pull 17% SDC under the transition rules; align board resolutions and reserves tracking.
3. Re-check holding filters: for inbound dividends to Cyprus HoldCos, confirm the payer’s business profile (>50% investment income?) and foreign ETR (≥7.5%). If both tests fail, budget 5% SDC.
4. Leverage incentives: refresh R&D pipelines, formalise option plans to meet the 8% conditions, and consider IPO readiness with the €300k deduction.
5. Tighten governance: document dividends and related-party transactions; avoid disguised distributions.
6. Employees: Inform Cyprus employees on the new incentives to ensure that they take full benefit and to avoid admin delays.

Key dates & transitions

• 1 Jan 2026: main start date for corporate & personal measures; stamp duty abolished.
• 1 Jul 2026: bank/e-payment required for rents >€500.
• Transitional dividends: legacy DDD/SDC mechanics may still apply to distributions of 2024–2025 profits—ensure retained earnings are tracked by year.

Cyprus Tax Reform 2026 — quick summary:

CIT 15%; DDD abolished for 2026+ profits; SDC 5% for Cyprus-resident & domiciled individuals; inbound dividends: 5% SDC only if passive + low-tax payer; outbound dividends: 0% generally, defensive WHT 5%/17% (low-tax/EU-blacklist); stamp duty abolished; loss carry-forward 7 years; R&D 120% (2025–2030); stock options 8% (approved plans); crypto gains 8% (losses ring-fenced); individuals: €22k threshold + revised bands; annual e-filing, six-year records; rents >€500 e-paid from 1 Jul 2026.

How Asterisk can help

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.

We have thorougly followed the Cyprus Tax Reform changes and have published also published a FAQ, focused on changes which impact businesses. You can also find the legislation as published in the Cyprus Government Gazette here.

Disclaimer

This guide is a general information summary of the Cyprus Tax Reform as enacted. It does not constitute tax, legal or accounting advice and should not be relied upon as such. Specific outcomes depend on your facts, financials and the exact legislative text and any implementing circulars. We suggest obtaining advise from a professional before acting.