Effective 1 January 2026, Cyprus implements the most significant tax reform in decades. On 22 December 2025, the Cyprus House of Representatives voted to approve the key tax reform bills — the first major overhaul of the tax system in over 20 years.
1. Corporate Tax: From 12.5% to 15%
The standard CIT rate rises from 12.5% to 15% for profits of tax years starting on or after 1 January 2026. This aligns Cyprus with evolving global tax standards (OECD Pillar Two) while maintaining a competitive headline rate. Businesses should update financial forecasts, effective tax rate models, and review intercompany pricing to reflect the new rate.
2. Dividend and SDC Reforms
The Deemed Dividend Distribution (DDD) rules are abolished for profits earned from 1 January 2026 — removing artificial tax triggers that previously taxed undistributed profits under certain conditions. Special Defence Contribution (SDC) on actual dividend distributions to Cyprus tax-resident individuals is reduced to 5% (down from 17%). SDC on rental income is abolished entirely.
3. Personal Income Tax
The tax-free threshold increases to €22,000 and new progressive brackets are introduced (20% / 25% / 30% / 35%). New targeted deductions support families with children, mortgage holders, renters, and green investment. Employers should update payroll systems to apply new thresholds from 1 January 2026.
4. Crypto and Equity-Based Remuneration
For the first time, the Cyprus tax code explicitly addresses digital assets: crypto disposals are subject to a flat 8% tax. Gains from approved employee stock option schemes are also taxed at 8%. Crypto holders should organise cost basis and disposal records ahead of 2026.
5. Loss Relief and Incentives
The loss carry-forward period is extended from 5 to 7 years. Enhanced deductions for R&D, intangible investment, and qualifying expenses remain or are expanded. These measures support growing businesses and innovation-led firms.
6. Stamp Duty Simplification
Stamp duty is abolished for most transactions, except specific categories including real estate and certain banking/legal instruments. This reduces transactional friction for commercial and corporate actions.
7. Compliance and Enforcement
The reform strengthens tax administration, including expanded information gathering, e-payment and digital documentation requirements, and enhanced audit and enforcement tools. Robust documentation and compliance will be essential to avoid disputes with empowered tax authorities.
Disclaimer: This summary is based on legislation approved by the Cyprus House of Representatives. Certain provisions remain subject to implementing regulations and transitional rules. This does not constitute tax advice.