The Republic of Cyprus has voted a tax reform, effective as of January 1st, 2026.
Regarding the Income Tax Law, the amendments inserted by the new tax reform are the following:
Corporate taxation of companies is increased from 12,5% to 15%.
Withholding tax on dividends paid to Cyprus tax resident and domiciled individuals is reduced to 5%.
Withholding tax on dividend payments made to associated companies in low-tax jurisdictions is reduced to 5%.
New constructive dividend rules apply if a shareholder is a Cyprus tax resident and domiciled individual. The reform provides for a constructive dividend, taxation of deemed dividends at the rate of 10%, with the deemed dividend calculated by adding the market value of an assets owned by a company used by a shareholder for private use, and the difference between the market value of an asset transferred by a company to its shareholder and the consideration amount paid for the said transfer.
Individual cumulative taxation is amended to raise the tax-free threshold from €19.500 to €22.000 and amend the following tax brackets as follows:
| Chargeable income (€) | Tax rate % | Accumulated Tax (€) |
|---|---|---|
| 0 – 22,000 | 0% | 0 |
| 22,001 – 32,000 | 20% | 2,000 |
| 32,001 – 42,000 | 25% | 4,500 |
| 42,001 – 72,000 | 30% | 13,500 |
| Over 72,000 | 35% | — |
Individual 60 days tax residency no more requires the condition for an individual not to be tax resident in another state for him/her to be Cyprus tax resident, in other words, the applicant can have dual tax residency, can be tax resident to 2 countries at the same time since an individual may be considered as tax resident to country 1 based on its days of residence, and tax resident to country 2 as well due to base of domicile. Dual residency may switch to one tax residency by applying a double tax treaty should there be a treaty between the relevant countries. That said, existing conditions to qualify as tax resident of Cyprus under 60-day rule, still apply for the same tax year:
- spend at least 60 days in Cyprus.
- does not spend more than 183 days in another state in total.
- He/she is not tax resident in any other country that year.
- maintain a permanent residence in Cyprus (owned or rented).
- work in Cyprus or carry on business in Cyprus or hold an office (e.g., director) in a Cyprus tax resident company.
The tax residency legal definition for Cyprus companies is amended to include the incorporation test, unless a double tax treaty provides otherwise, in other words the company incorporated in Cyprus shall be considered Cyprus tax resident, even if management and control are exercised abroad.
Tax losses may be carried forward for seven years instead of five years.
Permanent establishment rules are amended so that the tax exemption on profits of a foreign permanent establishment on applies to countries not included on European Union (EU) list.
The Exit taxation tax basis is no more limited to transfers from EU countries and now includes that the tax basis of assets should equal their fair value when a company establishes tax residency in Cyprus from a non-European Union (EU) country.
Cryptocurrency profits are taxed at 8% rate, and tax losses from cryptos can only be set off against cryptocurrency profits of the same person, while any unused tax losses are wasted.
Stock options granted under approved employer schemes are taxed at 8%, and the maximum amount taxable under this scheme is €1m over a 10-year period.
The insurance premium tax is abolished.
The scope of taxation regarding other income from employment is expanded to income including ex gratia payments, termination payment and “golden handshake” payments.
Stamp Duty is abolished and effective as of January 1st, 2026.
Transfer pricing documentation thresholds increase for goods to €5m, financial transactions to €10m, and other transactions to €2.5m.
Regarding SDC (Special Contribution for Defence), the amendments inserted by the new tax reform are the following:
The deemed dividend distributions rules for companies are abolished for dividends earned after January 1st, 2026.
Companies are no longer subject to 30% SDC on passive interest income and are only subject to 15% Income Tax.
Rental income is no longer be subject to SDC and is only subject to 15% Income Tax.
SDC tax on dividend income received from non-Cyprus tax-resident companies is reduced from 17% to 5% if the relevant conditions for exemption are not met.
Regarding CGT (Capital Gains tax), the amendments inserted by the new tax reform are the following:
CGT one-off lifetime tax exemptions for individuals are increased to EUR 30.000,
to EUR 50.000 for agricultural land, and EUR 150.000 for sale of primary residence.
The exception for sale of primary residence when such property is sold as part of a loan restructuring procedure is increased to EUR 450.000, until2023.
The CGT threshold for indirect disposal of shares in a company that owns immovable property in Cyprus is reduced from 50% to 20%.
The exception for the sale of shares listed on a “recognized” stock exchange, unless acquired before 1 January 2026, is replaced with an exception for sale of shares listed on a “regulated” stock exchange.
CGT does not apply to the sale of shares listed on a non-regulated stock exchange on the first €50k in a tax year.
It is clarified that the term “exchange of property”, which is not considered a disposal of property for CGT purposes, also includes the exchange of property with a land developer (as defined) under certain conditions.
With regards to allowances and deductions, the new tax reform amends as follows:
Capital allowance for assets contributed to the capital of a company provided that the fair value of the asset is substantiated to the satisfaction of the tax authorities.
Capital allowance for intangible assets that have an indefinite useful economic life, for a period of 20 years.
Family-based allowances which depend on family income and number of children.
Green expenditure capital allowances, i.e. renewable energy systems, electric energy storage systems and vehicles, extended until 2030.
Agricultural and livestock farming capital allowances at the rate of 25%.
€50k annual tax deduction for donations and contributions made to cultural institutions.
€300k annual tax deduction for expenditures incurred for listing shares on a recognized stock exchange.
€30k tax deduction for entertainment expenses.
An additional 20% deduction is added to the existing deduction for research and development and is extended to 2030.
An additional deduction for employers that pay a Cost-of-Living Allowance (COLA) as per the relevant trade unions agreement.
Interest expense deduction available for interest incurred for the acquisition of wholly owned (100%) direct and indirect subsidiaries, unless subsidiary is tax resident in a jurisdiction included on the European Union (EU) list of noncooperative jurisdictions for tax purposes, or is incorporated or registered in a jurisdiction included on the list and not considered to be tax resident in another jurisdiction that is not on the list.
Finally, with regards to Assessment and Collection of Taxes Law and Collection of Taxes Law, the new tax reform brings amends to the annual income tax return submission deadline, final payments schedule, the statute of limitations, the maintenance of books and records and the enforcement to enforce tax collection and combat tax avoidance by having stronger audit and collection powers and to impose increased administrative penalties.