Cyprus Tax Reform 2026: Key Highlights

Overview

Cyprus is implementing a comprehensive tax reform effective 1 January 2026, modernising its fiscal framework while aligning with OECD global standards.

The reform aims to maintain Cyprus’s position as a competitive, transparent European business hub, balancing moderate tax increases with new incentives for innovation, families, and investment.

Key Proposed Changes

Corporate & Investment Taxation

Corporate Income Tax (CIT):
The standard corporate rate rises from 12.5% → 15%, aligning Cyprus with the OECD’s global minimum.

Special Defence Contribution (SDC):

Reforms make Cyprus more attractive for investors:

• Dividends: SDC reduced from 17% → 5%.

• Rental Income: SDC abolished entirely.

• Deemed Dividend Distribution:Scrapped for profits generated after 2026, easing compliance.

Cryptoasset Taxation:
Income from crypto trading, mining, and digital-asset activities will be taxed at a flat 8%, providing one of the EU’s clearest frameworks for digital investments.

Loss Carry-Forward:
Tax losses may now be carried forward for 7 years (previously 5), improving flexibility for cyclical and project-based industries.

R&D Super-Deduction:
The 120% research and development super-deduction is extended until 2030, sustaining innovation across the tech, pharma, and renewable energy sectors.

Entertainment Deductions:
Deductible entertainment expenses increase to €30,000, capped at 1% of annual revenue, modernising business-development allowances.

Employee Share Options:
Approved employee share-option schemes benefit from an 8% flat tax, aligning Cyprus with international incentive practices and enhancing talent attraction

Individuals & Families

Personal Income Tax (PIT) Brackets (effective 2026):

New progressive tax brackets:

• Up to €22,000 — 0%
• €22,001–€32,000 —20%
• €32,001–€42,000 — 25%
• €42,001–€72,000 — 30%
• Above €72,001 — 35%

Personal Income Tax (PIT) Brackets (effective 2026):

• €1,000–€1,500 per child (age and schooling dependent)
• €2,000 relief for rent or mortgage interest on a primary residence
• €1,000 deduction for certified “green” home upgrades and energy efficiency investments

Mandatory Annual Tax Return:

All tax-resident individuals aged 25 and above must file an annual return, even if no tax is due, reinforcing transparency and accurate income reporting.

Why It Matters

The reform enhances competitiveness, simplifies compliance, and supports both business and family welfare.

Companies benefit from a clearer, globally aligned framework; individuals gain meaningful tax relief and incentives for sustainable living.

Next Steps for Taxpayers

• Review structures and dividend flows under the new SDC rules.
• Update payroll and accounting systems for revised brackets.
• Plan ahead for crypto, share-option, and R&D reporting.
• Engage professional advice before 2026 for full compliance.

Planning around the reform? See our guides to company formation in Cyprus and Cyprus corporate tax & compliance.