Cyprus Tax Reform 2026
A Comprehensive Legal Analysis of the New Tax Framework in Force from 1 January 2026
As of 1 January 2026, Cyprus has implemented one of the most extensive tax reforms of recent decades. The reform was enacted through a package of amending laws published in the Official Gazette of the Republic of Cyprus and accompanied by official explanatory material circulated to professional bodies.
The reform goes beyond changes in tax rates. It introduces structural reforms affecting corporate taxation, dividend distribution, stamp duty, personal income taxation, enforcement mechanisms, and procedural obligations. Its impact extends across companies, shareholders, trusts, directors, employees, and private clients, requiring careful legal and tax reassessment of existing structures.
This article provides a consolidated legal analysis of the main changes effective from 1 January 2026, how the new framework operates, and the practical implications for businesses and private clients.
1. Corporate Income Tax: Increase to 15%
1.1 The new rate
From 1 January 2026, Cyprus corporate income tax increased from 12.5% to 15%. This applies to all Cyprus tax-resident companies and permanent establishments under the Income Tax Law.
The increase reflects Cyprus’ alignment with evolving international standards, including OECD Pillar II minimum taxation initiatives.
1.2 Why the increase does not materially affect most structures
Although the rate increase appears significant, its impact on most international, holding, and investment structures is limited and often neutral.
Holding companies remain unaffected
- Dividend income remains fully exempt under participation exemption rules
- The 15% corporate tax does not apply to qualifying dividend income
- This applies to dividends from Cyprus and foreign subsidiaries
As a result, pure holding companies and investment vehicles are generally unaffected.
The increase mainly affects operating profits
The higher corporate tax applies mainly to:
- Trading profits
- Service income
- Financing margins
- Other taxable operating income
At the same time, the reform introduced offsetting measures such as the abolition of deemed dividends and reduced dividend taxation at shareholder level.
Effective tax burden often remains stable
From 2026, corporate tax is 15%, deemed dividend taxation is abolished, and SDC on actual dividends is significantly reduced. Over the full lifecycle of profits, overall taxation is often comparable or lower than before.
1.3 Additional measures offsetting the corporate tax increase
Crypto-asset taxation (8%)
A flat 8% tax applies to profits from crypto-asset disposals. Losses may be offset within the same tax year, providing clarity and certainty.
Loss carry-forward extended
The loss carry-forward period increased from five to seven years, benefiting start-ups, scale-ups, and capital-intensive businesses.
R&D super-deduction extended
The 120% R&D super-deduction on qualifying intangible asset expenditure is extended until 2030, reducing effective taxable income for innovation-focused companies.
Higher deductible entertainment expenses
The deductible limit increased from €17,086 to €30,000, supporting commercial and business development activities.
2. Dividend Taxation and Abolition of Deemed Dividend Distribution
2.1 Dividend tax reduced to 5%
Special Defence Contribution (SDC) on actual dividend distributions is reduced from 17% to 5%.
2.2 Non-dom individuals remain exempt
- Non-dom Cyprus tax residents continue to receive dividends free of SDC
- The reduction benefits Cyprus-domiciled individuals only
2.3 Abolition of deemed dividend distribution
The deemed dividend distribution mechanism is abolished for profits earned from 1 January 2026 onwards, eliminating artificial tax exposure where no dividends are distributed.
2.4 Transitional rules
Profits generated up to 31 December 2025 remain subject to the old regime, requiring careful separation between pre-2026 and post-2026 retained earnings.
3. Abolition of Stamp Duty
3.1 Complete repeal
Stamp duty is fully abolished from 1 January 2026. Documents executed on or after this date are no longer subject to stamp duty.
Documents signed by at least one party before 31 December 2025 remain taxable under the old rules.
3.2 Impact on Cyprus trusts
Trust deeds, variations, and trustee appointment or removal documents are no longer subject to stamp duty, strengthening Cyprus’ attractiveness as a trust jurisdiction.
3.3 Broader transactional impact
- Shareholders’ agreements
- Financing and lending agreements
- Commercial contracts
- Corporate reorganisations
4. Personal Income Tax: New Bands
4.1 Tax-free threshold increased
The personal income tax-free threshold increased from €19,500 to €22,000.
| Annual Taxable Income (€) | Tax Rate |
|---|---|
| 0 – 22,000 | 0% |
| 22,001 – 32,000 | 20% |
| 32,001 – 42,000 | 25% |
| 42,001 – 72,000 | 30% |
| 72,001+ | 35% |
5. New Family Deductions (Article 14B)
New personal deductions apply based on family structure and income thresholds:
- €1,000 for the first child
- €1,250 for the second child
- €1,500 for the third and each additional child
Single-parent families
For single-parent households or full custody arrangements, deductions may be doubled.
6. Mandatory Tax Return Filing
All Cyprus tax residents aged 25 or older must submit an annual income tax return, regardless of whether tax is payable.
7. Strengthened Tax Enforcement
The Tax Commissioner may impose restrictive measures over company shares where unpaid tax exceeds €100,000 and remains outstanding for more than 30 days.
This measure is designed as a collection tool rather than a punitive sanction but has implications for corporate governance and M&A.
8. Summary of Key Changes
| Area | Before 1 January 2026 | From 1 January 2026 |
|---|---|---|
| Corporate income tax | 12.5% | 15% |
| Dividend tax (SDC) | 17% | 5% |
| Deemed dividends | Applied | Abolished |
| Stamp duty | Payable | Abolished |
| Trust deed stamp duty | Payable | Abolished |
| Tax-free threshold | €19,500 | €22,000 |
| Mandatory tax filing | Limited | All residents 25+ |
| Share blocking for tax debt | No | Yes |
9. Practical Questions & Answers
Does the corporate tax increase harm Cyprus holding companies?
No. Dividend income remains exempt under participation exemption rules.
Does the 15% corporate tax affect international group HQ structures?
Generally no, unless the Cyprus company generates taxable operating profits.
How does abolishing deemed dividends change planning?
It removes forced shareholder taxation where no cash dividends are distributed.
Who benefits from the dividend tax reduction?
Cyprus-domiciled individuals benefit. Non-dom shareholders remain exempt.
Does stamp duty abolition apply to trusts?
Yes, fully.
Does the reform change Cyprus trust taxation?
No. The key benefit relates to stamp duty removal.
What is share blocking?
A targeted enforcement tool for serious unpaid tax debts, relevant to M&A and shareholder exits.
Does the 2026 reform reduce Cyprus’ attractiveness?
No. The reform simplifies compliance, preserves advantages, and modernises enforcement.
10. Concluding Remarks
The Cyprus Tax Reform 2026 modernises the tax system through simplification, elimination of legacy distortions, alignment with international norms, and enhanced enforcement.
Businesses, trusts, and private clients should review existing structures to ensure compliance and optimise efficiency under the new framework.
At AGPLAW, we are available to assist with tax planning, restructuring, compliance, and advisory services under the post-2026 Cyprus tax regime.
The information provided by
AGPLAW | A.G. Paphitis & Co. LLC
is for general informational purposes only and should not be construed as professional or formal legal advice. While every effort has been made to ensure the accuracy and reliability of the information contained herein, no representation or warranty is given. In no event will the author or any related parties be liable for any loss arising from reliance on this article.
