For over twenty years, the official corporate income tax rate of 12.5% (CIT) stood as the bedrock of the island's economic strategy and international appeal. It was a clear, predictable signal to the global market. However, this all changed on January 1st, 2026, when Cyprus’s new fiscal-neutral tax reform officially went into effect.
To remain compliant with the OECD and European Union’s push for global transparency (specifically the Pillar Two minimum tax requirements), Cyprus has officially adopted a 15% corporate income tax rate.
Don’t think of this small increase to 15% as a cost, but as a strategic shield. By adopting the recommended global minimum corporate tax rate, Cyprus has effectively secured its place as a globally recognized “white-listed” tax-friendly country. This protects entrepreneurs, high-net-worth individuals and international groups from the reputational and financial risks associated with "grey" jurisdictions, while maintaining a regime that is still among the lowest in the world.
What is Taxable? A Breakdown of Corporate Income To manage a company tax in Cyprus effectively, you must first distinguish between revenue and taxable profit. While the new 15% rate applies to core business profits, the system is designed with several specific carve-outs. Depending on your business model, your income will fall into one of three categories: it will be taxed at the standard 15% rate, benefit from a specialized lower rate, or be entirely exempt.
Income Subject to the 15% Corporate Tax The CIT in Cyprus is calculated based on these primary income streams:
Trading Income: Includes all profits earned from selling goods or providing services. It applies to your bottom line regardless of whether that money is earned locally or from international clients.Active Interest Income: Refers to interest earned as a direct result of your ordinary business activities. A common example would be interest income generated by a financing or treasury company.Rental Income: Covers net profits from leasing property. A major benefit of the new reform is that the Special Defence Contribution (SDC) on rent has been abolished. This simplifies your tax return, as rental income is now only subject to the standard corporate tax in Cyprus.Embedded IP Income: Profit earned from selling products that rely on your company's own patents or copyrighted software. While this is taxed at 15% by default, it is a key area for optimization. If your company qualifies for the "IP Box" regime discussed later in this guide, the majority of this income can be exempted, potentially lowering your effective rate to just 3%.Special Tax Rates: Income Exempt from CIT While the standard corporate rate applies to most types of income, certain activities are carved out of the CIT regime entirely. Instead of being aggregated with your trading profits, these income streams are "ring-fenced" and subject to their own specific tax rates.
Crypto-Asset Gains: A headline feature of the 2026 reform is the new flat 8% tax rate on profits from disposing of crypto-assets. To qualify, these gains must be part of your company's taxable activities. This is a ring-fenced regime, meaning crypto losses can only be offset against crypto gains within the same tax year and cannot be carried forward to future years.Capital Gains on Cyprus Real Estate: The sale of immovable property located in Cyprus remains exempt from CIT but is subject to a separate 20% Capital Gains Tax. Although this 20% rate is long-standing, the 2026 reform tightened the rules for "property-rich" companies. If just 20% of a company’s asset value comes from Cyprus real estate, selling your shares in that company can now trigger the 20% tax on the portion of the gain linked to the property.CIT Exemptions: Income That Remains Untaxed The reason Cyprus remains a top-tier destination for holding and investment companies is its extensive list of non-taxable income streams. If your company is structured for international investments, the new rate of 15% may barely touch your bottom line.
Dividends Received: Most dividend income you receive from other companies, whether they are in Cyprus or abroad, is 100% exempt from CIT. Even better, the 2026 reform has completely abolished the "Deemed Dividend Distribution" rules for all new profits. This means you are no longer forced to pay tax on undistributed earnings, giving you total control over your company's cash flow.Capital Gains on Securities: Profits from selling "titles," which include shares, bonds, and debentures, are completely exempt from the corporate tax. As long as the company being sold does not own real estate in Cyprus, you keep these gains in full.Foreign Branch Profits: If your Cyprus company has a permanent office or branch outside of the island, the profits earned by that branch are generally exempt from Cyprus tax. This allows you to use Cyprus as a central hub for international operations without double-taxing your foreign earnings. Passive Interest: Interest that isn't earned from your main business activities (like interest on a standard bank deposit) is exempt from the 15% CIT. While this income might still be subject to a small contribution at the shareholder level for certain local residents, it does not increase your company's corporate tax bill.Reducing CIT to 3% with the IP Box Regime For technology and R&D-heavy businesses or startups, the effective tax rate is often much lower than the 15% headline. Under the new reform, qualifying companies can claim a notional deduction of 80% on profits generated from assets such as software, patents, and other innovative IP.
Mathematically, this means you only pay the 15% tax on the remaining 20% of your profit:
15% x 20% = 3% effective tax
Following the reform, this rate was adjusted from the previous 2.5% to the new standard of 3%. Despite this small shift, it remains the lowest effective rate for software development and patented innovation in the European Union.
Compliance & Deadlines Staying compliant with your company tax in Cyprus requires a proactive, "pay as you go" approach. Unlike many jurisdictions where you wait until the end of the year to settle your bill, Cyprus uses a system of Temporary Tax payments based on your own self-assessment.
The Bi-Annual Temporary Tax Payments Every year, you must estimate your company's taxable income for the current year. You then pay this estimated tax in two equal installments:
July 31st: Submission of your provisional tax declaration and payment of the first 50%.December 31st: Payment of the remaining 50% installment.Pro Tip: You can revise your estimate at any point before December 31st if your business performs differently than expected. However, accuracy is important. If your final audited income is significantly higher than your estimate (specifically if your estimate was less than 75% of your final liability), a 10% penalty is applied to the difference.
The Audit & Filing Requirement By law, your final tax return must be based on financial statements audited by a qualified local auditor. The deadline for electronically submitting this return (Form TD4) is 13 months after the end of the tax year:
For the 2025 tax year: Your return is due by March 31, 2027 .For the 2026 tax year: Your return is due by January 31, 2028 .How Does Cyprus Compare to Other EU Countries Despite this small adjustment in the CIT, Cyprus remains one of the most competitive in the European Union. According to data from the Tax Foundation Europe the gap between Cyprus and high-tax hubs like Germany or France remains a significant advantage for international business owners.
Country Corporate Tax Rate (%)
Hungary
9.0%
Bulgaria
10.0%
Ireland
12.5% / 15.0% (Pillar Two)
Cyprus 15.0%
Lithuania
16.0%
Romania
16.0%
Croatia
18.0%
Poland
19.0%
Switzerland
19.6%
Finland
20.0%
Latvia
20.0%
Iceland
20.0%
Sweden
20.6%
Czechia
21.0%
EU Average 21.6%
Denmark
22.0%
Greece
22.0%
Norway
22.0%
Slovenia
22.0%
Austria
23.0%
Slovakia
24.0%
Estonia
24.0%
Luxembourg
24.9%
Belgium
25.0%
Spain
25.0%
Turkey
25.0%
United Kingdom
25.0%
United States (for comparison)
25.6%
France
25.8%
Netherlands
25.8%
Italy
27.8%
Portugal
29.5%
Germany
30.1%
Malta
35.0% (with refunds)
Cyprus: A Mature Jurisdiction The move from 12.5% to 15% signifies that Cyprus has matured. It no longer competes simply on being the cheapest option in Europe, but on being the smartest. By paying a globally accepted official Cyprus corporate income tax rate of 15%, you gain access to massive exemptions on dividends, a 3% rate for tech, and a "white-listed" reputation that protects your business interests for the long term.
To ensure your company stays on the right side of these changes, you must prioritize keeping your local audits up to date and maintaining real operational substance within the island. Our team can assist you with every step of this transition, from company formation and full international compliance to accounting and auditing services
