Cyprus Tax Reform Updates Effective from 2026

Cyprus Tax Reform Updates

Introduction

On 22 December 2025, the Cyprus Parliament approved a major package of tax reforms, representing the most significant update to the Cyprus tax system in over twenty years.

The reforms introduce a series of targeted changes to modernise Cyprus’ tax framework, strengthen compliance as well as enforcement, align the system with current economic and regulatory realities, while preserving Cyprus’s position as a competitive international business hub. The legislation also retains the core features that underpin Cyprus’ reputation as a stable, reputable EU jurisdiction for business, investment and relocation.

The majority of the amendments will apply from 1 January 2026 and will have wide-ranging implications for companies, individuals, shareholders and real estate transactions.

Cyprus Corporate Tax Reforms – Key Changes for Businesses

The Cyprus Tax Reform 2026 introduces a series of targeted corporate tax measures aimed at modernising Cyprus’ tax framework, enhancing competitiveness and aligning Cyprus with international tax standards.

The key changes affecting businesses are summarised below.

Cyprus Corporate Income Tax Rate

With effect from 1 January 2026, the statutory corporate income tax rate increases from 12.5% to 15%, aligning Cyprus’s headline rate with OECD Pillar Two global minimum tax standards, that target multinational enterprise groups.

Despite this increase, Cyprus continues to rank among the most competitive corporate tax jurisdictions within the European Union, particularly when viewed in conjunction with existing incentives such as the participation exemption regime, the Notional Interest Deduction (NID), the IP Box regime, the dividend tax framework and the abolition of stamp duty.

Cyprus Dividend Taxation (Post-2026)

The significant amendments that are most relevant to companies are:

• Abolition of deemed dividend distribution: The rule deeming retained profits to be distributed for SDC purposes is abolished for profits earned from 1 January 2026, aligning SDC with actual distributions;
• Tax on actual dividends: For Cyprus tax-resident and domiciled individuals, actual dividends distributed from post-2026 profits are subject to a 5% Special Defence Contribution (SDC), down from 17% as per the previous regime;
• Non-domiciled residents: The reforms do not affect the 0% SDC treatment of dividend income for non-domiciled individuals.

Cyprus Special Defence Contribution (SDC)

The significant amendments that are most relevant to companies are:

• Standard SDC on dividends: A 5% SDC applies to actual dividend distributions made from post-2026 profits to Cyprus tax-resident individuals;
• Concealed/disguised dividends: A new anti-avoidance rule taxes value transfers that effectively represent undisclosed profit distributions at 10% SDC;
• Withholding tax on outbound dividends: Dividends paid to companies resident in jurisdictions classified as low-tax under the legislation are subject to a 5% SDC withholding tax;
• SDC on rental income: SDC on rental income is abolished entirely, and such income will now be taxed under income tax rather than SDC.

Cyprus Capital Gains Tax

The significant amendments that are most relevant to companies are:

Increased tax-free thresholds

The reform significantly expands the lifetime CGT exemptions for disposals of immovable property and related assets:

• General exemption increased to €30,000;
• Primary residence exemption raised to €150,000;
• Agricultural land exemption increased to €50,000.

Property exchange relief extended

The CGT exemption for in-kind consideration involving immovable property is extended, permitting CGT deferral on property exchanges, subject to legislative conditions.

Lower threshold for indirect disposals of shares

The definition of immovable property for CGT purposes is amended:

• An indirect share disposal is subject to CGT where 20% or more of the shares’ fair market value is derived from immovable property in Cyprus (previously 50%);
• Proceeds from these disposals may also be adjusted to reflect the company’s underlying assets and liabilities.

Clarification of disposal proceeds

When shares in property-based companies are sold, the proceeds are determined by the parties but adjusted to account for the market value of any non-property assets and liabilities.

Crypto-Assets and Employee Share Schemes

The reform introduces specific tax treatment for certain modern asset classes and remuneration structures:

• A flat 8% tax rate applies to profits arising from the disposal of crypto-assets, with losses offsetable within the same tax year;
• Gains arising from approved employee share and stock option schemes are also subject to a special flat 8% tax regime, subject to statutory conditions and limits.

Loss Carry-Forward

The tax loss carry-forward period is extended from five to seven years, supporting businesses with longer investment and development cycles, including start-ups, capital-intensive projects and innovation-focused enterprises.

Research & Development and Business Deductions

• The enhanced 120% super-deduction for qualifying research and development expenditure is extended until 2030, reinforcing Cyprus’ commitment to supporting innovation and substance-based activities;
• The annual cap on deductible entertainment expenses is increased to €30,000 (from €17,086), better reflecting commercial practice in business development and client-facing industries.

Stamp Duty

Stamp duty is abolished in full for most transactions, including contracts and share transfers. Limited exceptions apply, primarily in relation to real estate, banking and insurance-related contracts. This measure significantly reduces transactional friction and administrative costs for businesses.

Cyprus Personal Tax Reforms – Key Changes for Individuals

The Cyprus Tax Reform 2026 introduces meaningful adjustments to personal income taxation, with a focus on easing the tax burden for individuals and families, supporting housing affordability, and promoting environmentally sustainable investments.

Revised Cyprus Personal Income Tax Brackets

With effect from 1 January 2026, the tax-free threshold for individuals increases from €19,500 to €22,000. The revised progressive tax brackets are as follows:

The changes aim to provide targeted support to middle-income earners while retaining the progressive nature of the personal income tax system.  These adjustments will have a noticeable effect across the income spectrum for both employees and self-employed individuals.

Family and Household Related Tax Allowances in Cyprus

Household tax allowances are available for spouses or cohabitees with the combined below maximum yearly income as at 31 December of the relevant tax year:

• €90,000 where there are no dependent children;
• €100,000 where there are one (1) or two (2) dependent children;
• €150,000 where there are three (3) or four (4) dependent children;
• €200,000 where there are five (5) or more dependent children; or
• €40,000 in the case of single individuals.

Note: “Dependent children” meaning children up to the age of 24 if they are students.

The following tax allowances are available to each parent assuming they meet the above mentioned income eligibility criteria:

• €1,000 for the first dependent child;
• €1,250 for the second dependent child;
• €1,500 for the third and each additional dependent child.

Note: This reform is especially suited to dual-income households, allowing the relief to be apportioned between spouses instead of in one individual.

Housing-related Allowance

Individuals may claim a deduction of up to €2,000 per year (per spouse / cohabitee) for interest on a performing loan relating to the purchase of a primary residence or for the rental of a primary residence.

This measure is intended to support owner-occupation and rental housing affordability.

Green and Sustainability Incentives

A deduction of up to €1,000 is available for:

• Expenditure incurred on the energy upgrading of a primary residence; or
• The purchase of a new electric vehicle.

This incentive reinforce the policy objective of encouraging environmentally sustainable investment and energy efficiency at household level.

Home Insurance Allowance

A deduction of up to €500 is available (per spouse / cohabitee) for insurance protection for natural disasters which aligns with a growing policy focus on strengthening household resilience and managing risk.

Severance Payments

Severance payments resulting from employment termination are subject to a 20% tax, with a €200,000 tax-free threshold.

Foreign Pension Income

The special tax regime for foreign pension income is retained, though amended, to allow Cyprus tax residents to select between progressive income tax rates or a flat 5% tax on pension income exceeding €5,000 annually. This is a key attraction for retirees who wish to relocate to Cyprus, alongside the country’s tax residency rules and extensive double tax treaty network.

Anti-Evasion Measures and Compliance Powers

The Cyprus Tax Reform 2026 introduces a strengthened compliance and enforcement framework, significantly expanding filing obligations, enhancing transparency and equipping the Tax Department with broader investigatory and enforcement powers.

Mandatory Filing Obligations

With effect from the 2026 tax year, all Cyprus tax residents aged 25 and above are required to submit an annual income tax return, irrespective of income level. Partnerships are also brought within the scope of mandatory filing, while corporate income tax return filing and payment deadlines are aligned to improve administrative consistency.

In parallel, the gross income threshold triggering the obligation for individuals to submit audited financial statements is increased from €70,000 to €120,000, recalibrating audit compliance requirements in line with current income levels.

Mandatory Electronic Payments for Rent

From 1 July 2026, rent payments exceeding €500 must be made exclusively through traceable electronic means, such as bank transfers. This measure is intended to enhance transparency in the rental market and address underreporting of rental income.

Expanded Investigatory and Enforcement Powers

The reform significantly strengthens the powers of the Tax Commissioner in cases of serious or repeated non-compliance. These powers include:

• The authority to request bank records and asset statements covering a period of up to six years;
• The power to seal business premises where persistent non-compliance is identified.

Collectively, these measures signal a clear shift towards increased reporting, enhanced audit capability and more robust enforcement, underscoring the importance of timely compliance and accurate record-keeping for individuals and businesses alike.

Cyprus Tax Reforms: Implications for FBS Clients

The latest Cyprus Tax Reforms mark a significant modernization of Cyprus’ tax framework, striking a balance between strengthened compliance, alignment with international standards and measures that maintain Cyprus’ competitiveness.

While the corporate income tax rate increases to 15%, Cyprus remains an attractive jurisdiction within the European Union, supported by a coherent framework of incentives and aligned policies.

The reform creates opportunities for proactive planning for both individuals and businesses.  Careful consideration will be required to assess its impact on existing structures and future planning.

How FBS can help – Navigating the Cyprus Tax Reform 2026

The Cyprus Tax Reform, effective 1 January 2026, introduces significant changes for both individuals and businesses. We are ready to help you assess the impact on your personal or corporate tax position and provide guidance on restructuring or planning strategies under the new framework.

FBS works closely with clients to:

• Understand how the updated personal and corporate tax rules apply to their corporate or personal tax position;
• Identify potential risks and opportunities arising from the reform;
• Develop practical strategies to ensure compliance and optimize tax efficiency.

With tailored advice and ongoing support, we can help you navigate the transition smoothly, enabling informed decisions with confidence.

Please get in touch if you have any questions and wish to discuss how these amendments may impact on your corporate or personal tax position.