Cyprus 2026 Tax Reform: Everything That Changed

Cyprus has raised its corporate income tax rate from 12.5% to 15%, effective 1 January 2026. The change aligns Cyprus with the OECD Pillar Two global minimum tax standard, which establishes 15% as the floor for large multinational groups.

The rate increase adjusts the outcome of every tax calculation built on the old 12.5% baseline. The most immediate effects:

• IP Box effective rate: The 80% deduction is unchanged. The effective rate is now 3% (15% × 20%) rather than 2.5%. Cyprus remains the most competitive IP jurisdiction in the EU by effective rate.
• Notional Interest Deduction (NID): The NID still applies to new equity capital introduced after 1 January 2015. Its value increases slightly as the marginal rate against which deductions are claimed is now higher.
• Participation exemption: Dividends received from qualifying subsidiaries and gains on disposal of qualifying shares remain exempt at corporate level — this is unchanged.

The SDC rate on actual dividend distributions has been reduced from 17% to 5% for dividends paid out of profits earned from 1 January 2026 onwards. This is the most commercially significant change in the reform for most existing Cyprus structures — it directly affects the cost of extracting profits to domiciled Cyprus-resident shareholders.

Who is affected: Cyprus tax residents who are also domiciled in Cyprus. Non-domiciled (non-dom) individuals remain fully exempt from SDC on all passive income — the 5% rate does not apply to them.

SDC on interest income remains 30%. SDC on rental income has been abolished entirely — see section 06.

The Deemed Dividend Distribution mechanism, which automatically deemed undistributed profits as distributed for SDC purposes two years after the end of the tax year in which they arose, is abolished for profits earned from 1 January 2026 onwards.

Under the old framework, a Cyprus company that retained profits without distributing them as dividends would still trigger SDC liability on those profits after two years — even if no cash had moved. For companies with domiciled shareholders, this created an unavoidable SDC cost on retained earnings.

Combined with the SDC reduction in section 02, the abolition of DDD represents a fundamental shift in how Cyprus treats retained and distributed profits — making the jurisdiction significantly more attractive for operating companies that need to retain earnings for reinvestment.

The personal income tax framework has been revised in two meaningful respects. First, the tax-free threshold has been raised from €19,500 to €22,000 — reducing the tax burden on lower and middle earners. Second, the 35% top rate now applies only to income exceeding €72,001 (raised from €60,001), giving higher-earning employees and self-employed individuals a wider band at lower rates.

For individuals earning between €60,001 and €72,000, what previously attracted 35% is now taxed at a lower marginal rate. The exact intermediate band rates follow the revised progressive schedule published in the Official Gazette; all taxpayers earning above €22,000 will see some benefit from the revised structure.

These changes interact with Cyprus's existing personal tax exemptions, which remain intact:

• 50% employment income exemption for high-earning employees (over €55,000 per year) commencing Cyprus employment for the first time — effective top rate approximately 17.5% for 17 years.
• Capital gains exemption on securities — profits from disposals of shares, bonds and other qualifying securities remain fully exempt from income tax.
• Dividend and interest income exemption from income tax — regardless of domicile status, these remain outside the income tax base (though SDC applies — see section 02).

Companies can now carry forward trading losses for seven tax years from the year in which the loss arose, up from five years. The change applies to losses arising from 1 January 2026.

This is most relevant for early-stage companies, technology businesses with high development costs, and any entity in a pre-revenue or low-margin period. A SaaS company or pharmaceutical R&D entity with significant upfront expenditure now has a longer window within which to absorb losses against future taxable profits.

Stamp duty has been abolished for the majority of commercial transactions effective 1 January 2026. For companies that regularly execute agreements, loan documents, shareholder resolutions, and commercial contracts in Cyprus, this eliminates a recurring compliance and cost burden.

The abolition also removes the SDC charge on rental income. Previously, landlords who were domiciled Cyprus tax residents paid 3% SDC on gross rental receipts. That charge is gone.

Stamp duty remains in force for:

• Real estate transfer documents and mortgage deeds
• Certain banking and insurance documents
• Documents presented to court

For most corporate advisory work — shareholder agreements, intra-group loan agreements, restructuring documents, and service contracts — stamp duty no longer applies.

The standard non-dom period is 17 years. Prior to the 2026 reform, individuals who reached their 17th year of Cyprus tax residency automatically became "domiciled" under the 17-out-of-20-years test, losing their SDC exemption.

The reform introduces an elective extension mechanism for individuals whose domicile of origin is outside Cyprus. Two additional five-year periods are available:

• Years 18–22: Non-dom status maintained in exchange for a lump-sum payment of €250,000 to the Cyprus Tax Department.
• Years 23–27: A second further extension, again at €250,000, covering up to 27 years of non-dom status in total.

The extension election must be made before the end of the 17-year period. Individuals approaching year 15 or 16 of their non-dom status should begin planning now. See our full guide to the Cyprus Non-Dom regime for the underlying framework.

From the 2026 tax year, all Cyprus tax residents aged 25 and above are required to submit an annual personal income tax return — regardless of whether they have taxable income. This removes the previous exemption for individuals with income below the €19,500 threshold who were not obliged to file.

Partnerships are also brought into the mandatory filing regime. Previously, only companies and certain individuals were required to file; the extension to partnerships closes a structural gap in the reporting framework.

For companies, the corporate tax return submission deadline and the final payment deadline have been aligned. The practical effect is that companies can no longer defer payment beyond the return submission date under the old staggered schedule.

The 2026 reform changed eight things. It left the core structural advantages of Cyprus intact. For anyone evaluating Cyprus as a jurisdiction, these remain in place: