Cyprus Tax Reform
Main changes effective 1st January 2026
On 22nd December, the Cyprus Parliament approved the most extensive tax reform in over two decades.
The changes will be effective from 1st of January 2026 and will affect both individuals, companies and investors with a focus on fairness, transparency and international competitiveness.
Personal Tax
1.1 Updated Tax Brackets
The tax-free threshold increases from €19,500 to €22,000. The revised tax brackets are:
| Chargeable Income | Bracket | Tax Rate | Cumulative tax |
| 0 – €22,000 | First €22,000 | 0% | – |
| €22,000 – €32,000 | Next €10,000 | 20% | 2,000 |
| €32,000 – €42,000 | Next €10,000 | 25% | 2,500 |
| €42,000 – €72,000 | Next €32,000 | 30% | 9,000 |
| Over €72,000 | 35% |
1.2 Deductions – Income Thresholds
The following deductions are available provided annual family income or single-parents family income does not exceed
- €100,000 – there are no children
- €100,000 – up to two (2) children as at 31 December of the tax year
- €150,000 – three (3) or four (4) children as at 31 December of the tax year
- €200,000 – five (5) or more children as at 31 December of the tax year
- €40,000 – single person
1.3 Family Tax Deductions (per parent)
New tax deductions are available for families with children:
- € 1,000 for the 1st child
- € 1,250 for the 2nd child
- € 1,500 for the 3rd and each subsequent child
For single-parent families, as well as in cases where one of the two parents has full custody, the amount of the granted allowance is doubled
1.4 Housing and Environmental Deductions
Tax deductions will be available for:
- rent or mortgage interest payment on the primary residence up to €2.000
- energy-efficiency upgrades of the primary residence or purchase of an electric vehicle up to €1.000.
- home insurance against nature disasters up to € 500.
1.5 Insurance Deductions
Insurance premiums for permanent or partial incapacity, in addition to life insurance is deducted from taxable income.
2.0 Subject of taxation
The below mentioned types of remuneration are added to the term of “taxable income” and to tax-lock specific types of benefits which in the past were subject to dispute.
- remuneration / incentives for accepting employment even before the commencement of work (signing bonuses)
- gratuities paid upon retirement
- benefits arising from early retirement schemes
- compensation payments which are not provided for in an employment contract
- any other benefit granted under any contract
Ex gratia payments upon retirement or termination of employment which exceed two hundred thousand euro (€200,000), shall be subject to taxation at a rate of twenty per cent (20%). This type of income is not added to any other income.
Crypto-asset profit on disposals: Taxed at a flat 8 % rate, with same-year losses offsettable.
3.0 Corporation tax:
The corporation tax rate will increase from 12.5% to 15%.
4.0 Special Defence Contribution (SDC)
- SDC on actual dividends reduced from 17 % to 5 %
- The Deemed Dividend Distribution (DDD) rule abolished for profits earned from 1 January 2026.
- SDC on rental income abolished.
- New withholding tax
- 5 % on dividends paid to companies in low-tax jurisdiction and
- 17% on dividends paid to companies in non-cooperative jurisdictions.
5.0 Dividends from older profits (Year 2023, 2024 and 2025)
Dividends between Cyprus Companies are exempt from SDC. However, the law introduces temporary exceptions for older profits and specific transition years.
- A Cyprus Company must pay 17% SDC where dividends derive from profits up to tax year 2023 and are distributed more than 4 years after the end of the year in which those profits were earned.
- A Cyprus Company must also pay the 17% SDC on dividends received from another Cyprus company
in 2026, if the dividend is paid out of 2024 profits, or
in 2026 or 2027, if the dividend is paid out of 2025 profits.
No 17% SDC is payable if
- SDC was already paid in the past
- The dividend originates from profits on which SDC has already been paid
- If the dividend relates to a shareholder who was not a Cyprus tax resident on the payment date
6.0 Tax incentives
- The loss carry forward period extended from 5 to 7 years
- The 120 % R&D super-deduction for qualifying research and innovation expenditure extended until 2030.
- The maximum limit of entertainment expenses deduction increased to €30,000 from €17,086.
7.0 Other tax issues
- Abolition of the requirement for an individual not to be tax resident in another state in order to qualify as a Cyprus tax resident under the 60-day tax residency rule.
- Abolition of the requirement that a company must not be tax resident in another state in order to be considered a Cyprus tax resident by virtue of its incorporation in Cyprus.
- Introduction of a special taxation regime of 8% on Share option rights and share purchase rights under an approved employer incentive scheme. The benefit of 8% applies only up to an amount equal to twice the employee’s remuneration, with any excess taxed under normal income tax rules. The benefit may not exceed €1 million over a 10-year period.
- From 1 January 2031, profits arising from the disposal or redemption of shares in a company-type investment fund will be taxed as dividend income, rather than capital gains (after deducting any capital gains tax already paid).
- Introduction of an alternative taxation method for non-domiciled individuals after completing 17 years of tax residence in Cyprus, for a period of five plus five years, with the payment of a lump sum of €250,000 per five-year period. An individual may use this method for up to two five-year periods.
- The payment of special defence contribution on income from foreign dividends and interest is payable upon the submission of the income tax return.
- Where a person owes over €100.000 in tax for more than 30 days, the Tax Commissioner may freeze any shares owned by the person (after notice and due process) in companies due to the unpaid tax, up to a value to twice the unpaid tax, plus interest and penalties.
- Individuals may choose Foreign Pension Income to be taxed either under the standard income rates or at a flat 5 % rate on pension income exceeding €5,000 per year (before change €3,420).
- Donations to approved cultural bodies are deductible up to €50,000, but cannot generate or increase tax losses to be carried forward.
- Companies can deduct IPO listing expenses up to €300,000.
8.0 Revised Transfer Pricing documentation thresholds
Financial transactions: €10 million
Goods transactions: €5 million
Other transactions: €2.5 million
9.0 Capital Gains Tax amendment
- The definition of immovable property is amended so as to reduce the percentage subject to capital gains taxation and to include the disposal of shares in companies that directly or indirectly own immovable property in Cyprus and the 20% (the threshold before was 50%) of the market value of those shares comes from Cyprus immovable property.
- Lifetime capital gains tax exemptions increased:
| Until 31/12/2025 | From 1/1/2026 | |
| General exemption | €17,086 | €30,000 |
| Agricultural land exemption | €25,629 | €50,000 |
| Primary residence exemption | €85,430 | €150,000 |
- Building/plots in exchange for land has been included in the exemptions from Capital Gains Tac
- Profit from the sale of shares in regulated and non-regulated market of a recognised stock exchange
- Until 31/12/2025
No tax is payable on the profit arising from the sale of shares listed on any recognised stock exchange
- From 1/1/2026
No tax is paid on the profit from selling shares that are listed on a non-regulated market of a recognised stock exchange, as long as the total value of all such sales in the same calendar year does not exceed €50,000. Not applicable for shares held on 31 December 2025.10.0 The Law relating to Stamp Duties is repealed
11.0 Law Amending the Assessment and Collection of Taxes Law
- Submission of income tax returns becomes mandatory for all individuals who are residents of the Republic aged 25 and above, regardless of whether they have taxable income.
- Mandatory submission of income tax returns by partnerships is introduced.
- Documents that support amounts and information stated in the tax return is required to be kept for a period of 6 years from the due date for submission of the tax return.
- The deadline for submitting an objection to the Commissioner of Taxation is extended to 60 days.
- Administrative penalties and monetary charges are amended to enhance voluntary compliance.
- Payment of rent relating to immovable property within the Republic is carried out exclusively via:
(a) bank transfer, or
(b) debit or credit card payment, or
(c) any other recognised electronic payment method, or bank cheque. - The gross income threshold for mandatory submission of audited accounts by individuals is increased from €70,000 to €120,000.
- The deadline for submission of corporate tax returns is moved to 31 January of the second year following the tax year, and this date will also apply to the payment of corporate tax.
- The Commissioner of Taxation may, by decision, suspend the operation of a business and seal its premises where the person operating the business:
(i) fails to submit (from 1 January 2027) at least two tax returns or at least twelve monthly withholding tax and contribution returns, or at least 3 vat returns or
(ii) fails to pay the tax calculated by them or the tax or contribution due under tax returns or withholding returns, or under assessments issued by the Commissioner of Taxation, provided that the total amount due, including surcharges, exceeds €20,000, or
(iii) issued inaccurate invoices or receipts as provided under the Law or failed to issue them, or
(iv) obstructs the conduct of a tax audit by authorised officers.
The duration of the suspension of business operations and sealing of premises may not exceed ten (10) days.
A prerequisite for issuing such a decision is the sending of three (3) notifications to the person concerned by registered letter to the last known correspondence address of the business or to the registered office of the connected legal person, or by leaving the letter at the registered office of the connected legal person, or by leaving the notification with any person appearing to be in charge at the business premises during an official visit by an authorised officer.
12.0 Penalties and fines have been increased in cases of non – compliance.