Cyprus has just enacted the most significant changes to its tax system in over twenty years. If you are running a business, holding investments, or working in Cyprus, these Cyprus tax changes directly impact your bottom line starting January 1, 2026.
Whether you are a CFO, an entrepreneur, or an employee, this guide breaks down exactly what has changed, what stays the same, and how to prepare.
At a Glance: The Key Changes If you only have a minute, here is the high-level summary of the reform:
Corporate Tax (CIT): Increases from 12.5% to 15%.Dividends: Deemed Dividend Distribution (DDD) is abolished for profits earned from 2026 onwards. SDC on actual dividends is reduced to 5%.Stamp Duty: Completely abolished from Jan 1, 2026.Personal Tax: Tax-free threshold raised to €22,000.Crypto: Trading profits taxed at a flat 8%.Administration: Mandatory annual tax returns for everyone over age 25.Changes for Individuals The new rules aim to support households, modernize income brackets, and encourage green living.
1. New Income Tax Rates The tax-free threshold has increased, providing immediate relief for lower and middle-income earners.
Tax Rate (%)
Taxable Income (€) Before 2026
Taxable Income (€) After 2026
0%
€0 – €19,500
0 – 22,000
20%
€19,501 – €28,500
22,001 – 32,000
25%
€28,501 – €36,300
32,001 – 42,000
30%
€36,301 – €60,000
42,001 – 72,000
35%
€60,001 and above
72,001 +
2. Family & Housing Deductions To reduce the tax burden on families, the government has introduced "income-tested" deductions. These apply if your household income is under specific caps (e.g., €100k for families with 1-2 children, rising to €150k for 3-4 children).
Child Allowance: tiered deductions to support growing families:
1st Child: €1,000 2nd Child: €1,250 3rd Child & beyond: €1,500 Housing: Up to €2,000 deduction for rent or interest on home loans (primary residence).
Green Allowance: Up to €1,000 deduction for home energy upgrades or buying an Electric Vehicle (EV).
Home Insurance: Up to €500 deduction for insurance against natural disasters.
3. Rental Income Rent is now SDC-Free: Previously, landlords paid a 3% Special Defense Contribution (SDC) on rental income. This is abolished . Rental income is now subject only to standard Income Tax (and GeSY).
4. Employment & Severance Pay Termination Payments: The tax-free limit for severance or redundancy pay has been massively increased from €20,000 to €200,000.
4. Mandatory Filing Previously, only those earning over a certain amount had to file. Now, every Cyprus tax resident aged 25 and older must submit an annual electronic tax return, regardless of income level.
Changes for Businesses The corporate landscape is shifting to align with global minimum tax standards while simplifying how profits are distributed to shareholders.
1. Corporate Income Tax (CIT) at 15% The CIT rate moves from 12.5% to 15%. While this is an increase, Cyprus remains one of the most competitive jurisdictions in the EU. This rate applies to tax periods starting on or after Jan 1, 2026.
2. Dividends: A Major Simplification This is arguably the biggest win for business owners.
Deemed Dividend Distribution (DDD) Abolished: You are no longer forced to distribute 70% of your profits every two years. This applies to profits earned from 2026 onwards .
Note: Profits from 2024–2025 are still subject to the old rules.
Reduced SDC: When you do decide to distribute dividends from post-2026 profits, the Special Defense Contribution (SDC) is reduced from 17% to just 5% for domiciled Cyprus tax residents.
Note: For Non-Doms, there are no changes—you continue to enjoy 0% tax on dividends for the 17-year duration of your status.
3. Incentives for Innovation & Crypto
Crypto Taxation: Profits from crypto assets held by companies are now taxed at a flat 8% .
Important: Losses are ring-fenced. This means crypto losses can only be offset against crypto gains in the same year and cannot be carried forward.R&D Super-Deduction: 120% deduction on qualifying R&D costs is extended until 2030.
Employee Stock Options: Gains from approved plans are taxed at a flat 8%. There is a €1 million lifetime cap on this benefit over a 10-year period.
Loss Carry-Forward: The period for carrying forward tax losses has been extended from 5 years to 7 years, giving businesses more time to offset bad years against future profits.
4. Stamp Duty Abolished As of Jan 1, 2026, Stamp Duty is zero for most commercial contracts. This removes friction and costs from contracts, share transfers, and loan agreements, making M&A and intra-group financing significantly cheaper.
Real Estate & Capital Gains If you are buying or selling property, the thresholds have been updated to reflect current market values.
Lifetime CGT Exemptions Increased:
General exemption: Up to €30,000. Primary Residence: Up to €150,000. Agricultural Land: Up to €50,000. Property-Rich Companies: If you sell shares in a company, and just 20% (previously 50%) of that company's value comes from Cyprus real estate, Capital Gains Tax may apply.
What Stays the Same? It is important to note that the core pillars that make Cyprus attractive for foreign investors remain untouched:
Non-Dom Regime : Still in place (exempting you from SDC on dividends and interest for 17 years).
60-Day Rule: The flexible tax residency rules remain unchanged.
IP Box Regime: Continues to offer up to 80% exemption on qualifying IP profits.
No WHT on Outbound Payments: Generally, no withholding tax on dividends/interest paid to non-residents (unless they are in blacklisted jurisdictions).
Conclusion: A Modern Framework for Growth The Cyprus Tax Reform 2026 signals a mature evolution for the island, trading complexity for clarity. While the headline corporate rate has adjusted to 15%, the abolition of the Deemed Dividend Distribution and Stamp Duty removes significant administrative friction, solidifying Cyprus as a premier, business-friendly EU hub.
Adapting to these "recalibrations" and the transition between old and new dividend rules requires a proactive strategy rather than a reactive one. Whether you need to update your payroll for new deductions or restructure your holdings for the 2026 landscape, expert advice is essential. Reach out to our team today, or visit our Company Formation service page to ensure your business is perfectly positioned to thrive in this new era.
