Cyprus Tax Reform 2026: Key Individual & Business Changes Explained

For the first time in over two decades, Cyprus has introduced a major tax reform of its fiscal framework, effective from 1^st January 2026, which includes an increase in the corporate tax rate, new personal income tax bands, the abolition of stamp duty and the deemed dividend distribution (DDD) rule, and various new deductions, aiming at modernising Cyprus Tax system, strengthen administrative compliance, and enhance Cyprus’s position as a global and transparent business hub.

Key highlights of the Cyprus Tax Reform changes (effective from 1^st January 2026)

• Corporate tax rate increased to 15%;
• Special Defence Contribution (SDC) tax on dividends reduced to 5% for domiciled Cyprus tax residents;
• Deemed Dividend Distribution rule abolished for 2026 profits and onwards;
• Stamp Duties fully abolished;
• Tax-free personal income tax threshold increased to €22,000;
• Flat 8% ring-fenced tax on crypto assets disposal;
• SDC on qualifying bond interest reduced to 3%;
• Mandatory tax return submission for all tax residents over the age of 25.

On the 22^nd December 2026, the Cyprus House of Representatives, voted and approved and subsequently published into the Official Gazette on the 31^st December 2025, amendments in the provisions of the following six (6) tax laws:

1. The Income Tax Law of 2002 (118(I)/2002) (the “ITL”);
2. The Special Contribution for the Defence Law of 2002 (117(I)/2002) (the “SDCL”);
3. The Assessment and Collection of Taxes Law of 1978 (4/1978) (the “ACTL”);
4. The Collection of Taxes Law of 1962 (31/1962) (the “CTL”);
5. The Stamp Duty Law of 1963 (19/1963) (the “SDL”);
6. The Capital Gains Tax Law of 1980 (52/1980) (the “CGTL”).

Please see below in greater detail the key changes to the aforementioned laws.

1. Key changes to the Income Tax Law of 2002 (“ITL”)

• Corporate Income Tax (CIT): The CIT rate increases from 12.5% to 15% for all Cyprus tax-resident companies, aligning with the OECD Pillar Two global minimum tax framework and with earlier declarations of the Cyprus Government.

• Crypto Asset Taxation: Profits / Gains from the taxable disposal of crypto assets will be taxed at a flat 8% rate, when one of the following disposals takes place:

• • Sold for fiat currency
  • Exchanged for other crypto assets
  • Used of cryptos for payment for goods or services
  • Donation or gifting.

The regime operates on a ring-fenced basis; this means that crypto profits / gains are not mixed with other income streams and are wholly separate from other income streams and do not come under the normal progressive tax brackets of the Income Tax Law but rather are subject to the new flat 8% tax rate. Losses can now be offset from crypto disposals against other crypto gains within the same tax year.

Profits / gains deriving from mining or stacking activities are not qualifying for the reduced tax rate of 8%.

Please see here for more information on the new Crypto Asset Taxation of Cyprus.

• Share-Based Incentive Schemes: Any benefits for Cyprus tax resident employees or company management (with such management not being considered as “related parties” under the arm’s length principle for transfer pricing purposes), derived from the granting of stock options or the granting of shares acquisition pursuant to an Employer’s incentive scheme approved by the Tax Commissioner, are subject to a special rate of 8% taxation.

• Tax residency for individuals (special 60-day rule): Under the new Cyprus Tax Reform, for the special 60-days rule tax residency, the condition “an individual not to be tax resident” has been removed.

• Tax-Free Threshold: The personal income tax-free threshold is raised from €19,500 to €22,000.

• New Progressive Income Tax Bands: New progressive tax bands are introduced on personal income tax:
  • €0 – €22,000: 0%
  • €22,001 – €32,000: 20%
  • €32,001 – €42,000: 25%
  • €42,001 – €72,000: 30%
  • Above €72,000: 35%

• New Deductions for Families and Students: Targeted deductions are introduced for eligible families and housing, including up to €2,000 for mortgage interest or rent on a primary residence, green investments (e.g. electric vehicle, renewable energy systems, batteries) up to €1,000, home insurance for natural disasters up to €500 and family deductions (per parent) for dependable children as follows:

• • 1^st child: €1,000
  • 2^nd child: €1,250
  • 3^rd+ child: €1,500

For the above, the income eligibility must be: up to €100,000 for 1 to 2 children, up to €150,000 for 3 to 4 children, and up to €200k,000 for 5+ children.

• Loss Carry-Forward: The period for carrying forward tax losses is extended from 5 to 7 years.

• Entertainment Deductions: The amount for allowable deduction for entertainment expenses has been increased to €30,000 from €17,086. It is noted that the amount of Entertainment Deductions remains capped at 1% of the gross income of the business.

• Research and Development (“R&D”) Super Deductions: The elective deduction (Super Deduction) on qualifying R&D expenses is increased from 100% to 120% (applicable for years 2022 up to 2024 inclusive) and extended up until tax year 2030 inclusively.

• Benefits to employers: Employers and businesses paying Cost-of-Living-Adjustments (“COLA”) shall receive substantial deductions.

2. Key amendments to the Special Contribution for the Defence Law of 2002 (“SDCL”)

• Dividends Taxation: The Special Defence Contribution (“SDC”) on actual dividend distributions to Cyprus-resident and domiciled individuals is reduced from 17% to 5%.

• Abolition of Deemed Dividend Distribution (DDD) rule: The DDD rule, which previously required the distribution of 70% of profits within two years of the tax year-end, is abolished for profits earned from the 2026 tax year onwards, offering businesses greater capital flexibility in retaining earnings and major financial relief.

• Rental Income: No SDC will apply to rental income as the relevant provision has been abolished.

• Interest on bonds: Introduction of a reduced SDC tax rate of 3% on interest from certain categories of qualifying bonds.

• Withholding Tax: New withholding tax on dividends distributed outside of Cyprus to related party companies that are resident and/or organized and/or established in EU blacklisted and low-tax jurisdictions:

• • EU-Blacklisted Jurisdictions: 17%
  • Low-tax jurisdictions: 5%

• Penalties: Penalties and fines for breaches of the SDC Law have been increased.

3. Key amendments to the Assessment and Collection of Taxes Law of 1978 (“ACTL”)

• Mandatory Filing: All Cyprus tax residents aged 25 and over until the age of 70 must submit an annual personal tax return, regardless of income level and regardless whether the individual has no taxable income at all.

• Electronic Payments: As of 1^st July 2026, rental payments for Cyprus situated real estate properties exceeding €500 must be made electronically via bank transfer, or payment by debit or credit card, or any other recognized electronic payment method. Any other method of payment including cash payment is no longer allowed.

• Liability of directors even after tenure: Liability is established for Directors and their responsibilities towards the Company for the duration of their tenure as directors of the Company, even if at the time of any action (administrative or judicial) they are no longer registered as directors either due to resignation or for any other reason.

• Partnerships: The tax reform has introduced an obligation for all partners of a Cyprus partnerships to register in the Tax Registry and file annual tax returns of their taxable share from the Cyprus partnership.

• Enhanced powers to Tax Commissioner: The Tax Commissioner is granted enhanced powers to request tax-related banking information from Cyprus-based banks (such as deposits), to request asset and liability statements for a period covering up to 6 years, to require retention of supporting tax records and related documentation for 6 years, and implement enforcement measures for serious non-compliance (failure to submit tax returns, failure to issue legal receipts, or outstanding tax liabilities), such as sealing the businesses premises of a tax payer for a period of up to 10 days with a possibility of extension by an additional 20 days. Taxpayers retain the right to challenge such decisions in court.

• Penalties: Penalties and fines for breaches of the ACT Law have been increased.

4. Key amendments to the Collection of Taxes Law of 1962 (31/1962) (“CTL”)

• Enhanced Powers:The Tax Commissioner is granted enhanced powers to implement enforcement measures for serious non-compliance, such as pledging / freezing company shares for failure to pay taxes exceeding €100,000 within 30 days from due date (with exception of instalment agreements, waivers, ongoing cases). Taxpayers retain the right to challenge such decisions in court.

 5. The Stamp Duty Law of 1963 (19/1963) (“SDL”)

• Stamp Duty: The SDL has been completely abolished as of 1^st January 2026. All documents that were drawn up and signed by at least one contracting party, up until the 31 ^st December 2025 will remain subject to stamp duty in accordance with the rules of the Stamp Duty Laws of 1963 to 2025.

6. Key amendments to the Capital Gains Tax Law of 1980 (“CGTL”)

• Tax free threshold οn disposals by individuals: In relation to capital gains tax, the tax-free threshold is increased to €30,000 from €17,086 in relation to general land sales, to €50,000 from €25,629 in relation to sale of agricultural land by farmers, and €150,000 from €85,439 for the disposal of a primary residence which has been used by the owner for a total period of at least 5 years exclusively for own habitation and is located on land up to one and a half plots.

• Exemption on disposal of listed shares: The exemption on disposal of listed shares has been amended to apply to shares listed on a regulated market of a recognised Stock Exchange (previously only on Emerging Companies Market of the Cyprus Stock Exchange – “Nea Agora”). Grandfather provisions and other exemptions apply for disposal of shares in an unregulated market of a recognized Stock Exchange.

• Definition of “property”: The definition of “property”, in relation to property-rich companies, which includes shares of companies which, whether directly or indirectly, hold shares of companies that own real estate property in Cyprus, is amended to reduce the threshold of the real estate property value vis-a-vis the market value of the said shares from at least 50% to at least 20%. In case of the disposal of such shares, the proceeds from this disposal shall be considered as the proceeds from the disposal of the real estate property, as declared by the contracting parties, adjusted for the market value of any other assets and liabilities.

• Penalties: Penalties and fines for breaches of the CGT Law have been increased.

Our Legal Services

The Cyprus Tax Reform changes present new opportunities for planning, restructuring and new obligations for compliance. At Paris Mavronichis & Co LLC, our specialist lawyers and accountants / auditors’ associates, can assist you with the following:

• Corporate legal advice and tax advice, on local and international level (in collaboration with our trusted associates).
• Personal tax and estate planning, compliance and residency.
• Assistance with applicable taxation on dividends (such as SDC and GeSY) and investment income (rents, interests, financial instruments).
• Company formation, corporate administration, arrangement of office space and nominee services.
• Opening and maintaining bank account for the Company and provision of bank signatory services.
• Assistance with accounting, audit, investigation, and disputes before the Tax Commissioner.

Please feel free to contact us if you have any question as to how the new Cyprus Tax Reform can impact you or your business and to discuss how we can be of assistance to you.

DISCLAIMER:

PARIS MAVRONICHIS & CO LLC accept no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

The material contained herein is provided for informational purposes only and does not constitute legal advice nor is it a substitute for obtaining legal advice from an advocate.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced advocate. PARIS MAVRONICHIS & CO LLC will be glad to assist you in this respect.