Cyprus Tax Reform 2026

On Monday, 22 December 2025, the Cypriot House of Representatives approved a long-anticipated tax reform package, marking the most extensive overhaul of the tax system in over two decades. The legislation, which will take effect from 1 January 2026, introduces significant changes to both corporate and personal income taxation, alongside a series of targeted deductions for households and businesses.

For ease of reference, the key highlights are set out below.

Personal Tax Changes

Personal income tax thresholds and bands have been revised as follows:

• 0% on income up to €22,000
• 20% on income from €22,001 to €32,000
• 25% on income from €32,001 to €42,000
• 30% on income from €42,001 to €72,000
• 35% on income exceeding €72,001

For employees, these changes will affect both marginal tax rates and overall effective tax burdens, with direct implications for payroll calculations and bonus structuring.

The legislation also introduces scaled deductions for families with children and students, with eligibility determined by household income and family size.

Corporate Measures

• Corporate income tax will increase from 12.5% to 15%, aligning Cyprus with the OECD global minimum tax framework applicable to multinational groups.
• Special Defence Contribution (SDC) on actual dividend distributions to Cyprus tax-resident domiciled individuals will be reduced from 17% to 5% for profits earned after 1 January 2026.
• The deemed dividend distribution regime is abolished for profits earned from 1 January 2026 onwards, subject to anti-avoidance provisions addressing concealed distributions under arm’s-length principles.
• A 5% withholding tax is introduced on dividends paid to companies resident in Low Tax Jurisdictions.
• The loss carry-forward period is extended from five to seven years.
• The 120% super-deduction for qualifying R&D expenditure on qualifying intangible assets is extended until 2030.

Other Measures

• A special taxation method applies to profits arising from the disposal of crypto-assets, subject to a flat 8% tax rate, with losses offset against profits of the same year.
• A preferential 8% tax regime is introduced for gains from stock option rights under approved employer share schemes, capped at twice the employee’s remuneration and subject to a €1 million lifetime limit over ten years.
• Ex gratia payments paid as a lump sum upon commencement or termination of employment are subject to income tax at 20%, after a tax-free threshold of €200,000 in cases of termination.
• Stamp duty is abolished for most contracts, reducing transactional costs for businesses and individuals.
• The Special Defence Contribution on rental income (previously 3% on 75% of rental income) is abolished, while rental income remains subject to income tax.
• In addition, an alternative taxation method is introduced for non-domiciled individuals after completing 17 years of Cyprus tax residence, allowing for a fixed tax payment of €250,000 per five-year period, applicable for two consecutive five-year periods.

Tax Collection and Enforcement

The reform also seeks to streamline tax filing and payment procedures, broaden the tax base, and strengthen enforcement against tax evasion and avoidance. Key changes include higher thresholds for audited accounts, revised corporate filing and payment deadlines, mandatory tax return filing for all adult residents and partnerships, enhanced penalties, traceable payment requirements for rental income, and expanded powers for the Tax Department to temporarily suspend non-compliant businesses.

ICONIX Comment

These reforms represent a clear effort to modernise the Cypriot tax system, introducing greater fairness for middle-income families while significantly strengthening compliance and enforcement.

For individuals, the 50% personal income tax exemption for high earners remains in place, while the 60-day tax residency and non-domicile regimes are largely preserved or enhanced.

Although corporate income tax increases to 15%, Cyprus remains one of the more competitive jurisdictions within the European Union, supported by exemptions on dividend income and foreign capital gains. Preferential regimes also remain available for qualifying intangible assets (including software) and the Notional Interest Deduction (NID).

Taken together with enhanced anti-avoidance measures, these amendments should help enhance Cyprus’ international standing as a reputable finance centre, improve access to treaty benefits under double taxation conventions and EU Directives, and facilitate smoother banking relationships within the EU.