Cyprus Tax Reform 2026: Every Change You Need to Know

Limassol, May 14, 2026 - Fiscalpoint Ltd

Cyprus has introduced the most significant overhaul of its tax framework in over two decades, effective 1 January 2026. The changes touch corporate tax rates, personal income tax, dividend taxation, crypto assets, stamp duty, and the non-dom regime. If you operate a Cyprus company, hold assets through Cyprus, or are a Cyprus tax resident, these reforms affect you directly and immediately.

Overview: What changed on January 1, 2026?

The 2026 Cyprus tax reform was driven primarily by Cyprus’ obligation to align with the OECD’s Pillar Two global minimum tax standard, but the government used the legislative process to implement a broader package of structural improvements. The result is a substantially modernised tax code — one that preserves many of Cyprus’ most competitive features while removing outdated mechanisms and reducing friction for investors and residents alike.

Corporate tax rate: 12.5% to 15.0%

The headline change is the increase in Cyprus’ corporate income tax (CIT) rate from 12.5% to 15%, effective for tax years beginning on or after 1 January 2026.

This brings Cyprus into alignment with the OECD Pillar Two framework, which requires a global minimum effective tax rate of 15% for large multinational groups. For Cyprus-based SMEs and mid-market businesses that fall below the Pillar Two threshold (consolidated group revenue of €750 million), the rate increase is not driven by obligation — it is a deliberate policy choice to harmonise the domestic rate and reduce the risk of top-up taxes being applied by other jurisdictions.

The 2.5 percentage point increase is material, but it does not undermine Cyprus’ competitive position within the EU. The 15% rate remains among the lowest in Europe.

IP Box: Effective Rate Preserved at 3%

Despite the CIT rate increase, the IP Box regime retains its fundamental economics. Under the IP Box, 80% of qualifying intellectual property profits are exempt from tax, leaving only 20% exposed to the standard CIT rate.

At the new 15% rate: 20% × 15% = effective rate of 3%.

This compares to the pre-2026 effective rate of 2.5% (20% × 12.5%). The change is modest. Cyprus remains one of the most attractive jurisdictions in the EU for IP holding and commercialisation structures.

SDC on Dividends: Reduced from 17% to 5%

Special Defence Contribution (SDC) on dividends received by Cyprus tax-residents and domiciled shareholders has been cut from 17% to 5%, effective 1 January 2026.

This is a significant reduction for shareholders who are Cyprus tax residents and Cyprus domiciled (and therefore not covered by the non-dom exemption). The reform makes it considerably less costly to extract retained profits from Cyprus companies by way of dividend.

Deemed Dividend Distribution (DDD): Abolished

The Deemed Dividend Distribution mechanism — which previously imposed SDC on undistributed profits after a holding period — has been abolished for profits earned from 1 January 2026 onwards.

This removes a longstanding friction for Cyprus companies that retained earnings for reinvestment rather than immediate distribution. Companies are no longer penalised for accumulating capital within their structures.

SDC on Rental Income: Abolished

SDC on rental income, which previously applied at a rate of 2.25%, has been abolished with effect from 1 January 2026.

Cyprus tax-resident and domiciled individuals who own rental property will no longer pay SDC on that income. Combined with the removal of DDD and the reduction in SDC on dividends, this represents a material improvement in the after-tax position of Cyprus-domiciled investors.

Cryptocurrency: 8% Flat Tax on Capital Gains

From 1 January 2026, capital gains from cryptocurrency transactions are subject to a flat tax rate of 8% in Cyprus.

This is a new provision. Previously, there was no specific statutory treatment for crypto gains in Cyprus, creating uncertainty for holders and traders. The 8% rate is a standalone capital gains tax applying to gains from the disposal of crypto assets. It does not form part of the personal income tax schedule, and it is not subject to SDC.

The 8% rate is low by international standards and positions Cyprus as a clear-framework jurisdiction for crypto investors.

Personal Income Tax: Higher Tax-Free Threshold

The personal income tax (PIT) exemption threshold has been raised from €19,500 to €22,000, effective 1 January 2026.

The increase in the zero-rate band to €22,000 reduces the tax burden on lower and middle-income earners and brings more residents below the filing threshold — though new mandatory filing rules (below) now apply regardless of income level.

Mandatory Annual Tax Returns: Now Required for All Residents Aged 25+

From 2026, all Cyprus tax residents aged 25 and over are required to file an annual personal income tax return (TD1 form), regardless of their income level.

Previously, filing was only mandatory for individuals whose income exceeded the taxable threshold. Under the new rules, even a resident with income below €22,000 — and therefore no tax liability — must file a return if they are aged 25 or above.

This is a significant administrative change. It affects retirees, individuals with passive income, employed persons, and anyone maintaining Cyprus tax residency for non-dom or other purposes. Filing deadlines and the penalty regime for non-compliance remain in place. Taxpayers should ensure they are registered with the Tax Department and have access to the TaxisNet system.

R&D Super-Deduction: 120% Until 2030

A 120% super-deduction is available on qualifying research and development expenditure. This means that for every €100 spent on eligible R&D, €120 is deductible against taxable income — creating a deduction in excess of the actual cost.

The super-deduction is available until 31 December 2030. It applies to Cyprus tax-resident companies and Cyprus permanent establishments of foreign companies, subject to qualifying conditions. This incentive is particularly relevant for technology, pharmaceutical, and innovation-driven businesses that have established or are considering a Cyprus operational presence.

Stamp Duty: Abolished for New Contracts

Stamp duty has been abolished for new contracts entered into on or after 1 January 2026.

This is an important limitation: the abolition applies to new contracts only. Pre-existing contracts that are renewed after 1 January 2026 continue to attract stamp duty at rates of 0.15% to 0.20%

of the contract value. Businesses reviewing their contract structures should be aware of this distinction — a renewal is not treated the same as a new contract for stamp duty purposes.

Loss Carry-Forward: Extended to 7 Years

The period for which corporate tax losses can be carried forward has been extended from 5 years to 7 years.

This provides additional flexibility for businesses with volatile income profiles, start-ups, or companies making significant capital investments that generate initial losses. The 7-year window gives companies more time to utilise accumulated losses against future profitable years.

Capital Gains Tax Thresholds: Increased

CGT exemption thresholds on the disposal of immovable property in Cyprus have been raised:

These are lifetime exemptions. The increases reduce the CGT exposure for individuals disposing of property, particularly those selling a primary residence.

Non-Dom Regime: Preserved and Extended

The non-domiciled (non-dom) tax regime remains intact. Non-dom status exempts individuals from SDC on dividends and interest income, making it one of Cyprus’ most valuable tax residency incentives.

From 2026, a new extension mechanism applies: after 17 years of Cyprus tax residency, an individual who would otherwise lose non-dom status can extend it for two additional 5-year blocks, each requiring a €250,000 lump-sum payment to the Cyprus government.

This is a significant development for long-term Cyprus residents who built their financial structures around non-dom status. The extension is available but it comes at a cost — planning around the 17-year milestone should begin well in advance.

Notional Interest Deduction: Retained

The Notional Interest Deduction (NID) continues to apply. NID allows companies that are funded by equity (new equity introduced after 1 January 2015) to claim a deduction equivalent to a notional interest charge on that equity, calculated at the 10-year government bond yield of the investment country plus 5%, capped at 80% of taxable profits.

NID remains an important tool for equity-funded holding companies and operating businesses seeking to reduce their effective corporate tax rate below 15%.

Summary

The 2026 Cyprus tax reforms are a substantive, not cosmetic, overhaul. The corporate rate increase to 15% is the most visible change, but the reduction in SDC on dividends, the abolition of DDD and SDC on rental income, the introduction of a crypto tax framework, and the new mandatory filing obligations collectively reshape the compliance and planning landscape. Cyprus retains its core competitive advantages — IP Box, non-dom regime, NID, and a 15% corporate rate that remains among the lowest in the EU — while modernising the framework to meet international standards.