Cyprus Tax Reform 2026: Every Change at a Glance

Cyprus has passed its biggest tax overhaul since 2002. Parliament approved the reform package on 22 December 2025, the laws were gazetted on 31 December 2025, and the new rules apply from 1 January 2026. Corporate tax rises from 12.5% to 15%, the special defence contribution (SDC) on dividends drops from 17% to 5%, the deemed dividend distribution regime disappears, and crypto gains now carry a flat 8% tax.

The headline — a higher corporate rate — hides the real story. For a typical owner-managed company that pays out its profits, the combined burden of corporate tax plus dividend tax falls from about 27.4% to 19.25%. At the same time, compliance gets stricter: shorter deadlines, mandatory bank payments for rent, and a six-year record-keeping duty. This guide walks through every enacted change, with a comparison table and a calculator so you can run your own numbers.

One caveat before the details: several figures floated during the 2024–2025 consultation phase did not survive into the final laws. Everything below reflects the enacted legislation as summarised in the January 2026 publications of the major tax and corporate service firms.

The Full Comparison: Old Rules vs. New Rules

This table covers the enacted changes. "Until 2025" means tax years up to and including 2025; "From 2026" means tax years starting 1 January 2026.

Area	Until 2025	From 2026
Corporate income tax	12.5%	15%
Deemed dividend distribution (DDD)	70% of profits deemed distributed after 2 years; SDC charged even without a payout	Abolished for profits from 2026 — full retention allowed; refund mechanism for old DDD payments when profits are later paid to non-residents or non-doms
SDC on dividends (domiciled shareholders)	17%	5% on profits earned from 2026; profits accumulated up to 31 Dec 2025 keep 17% on distribution until 31 Dec 2031
Concealed dividends (anti-abuse)	No dedicated rule	10% charge on benefits treated as hidden distributions
WHT on dividends to EU-blacklisted / low-tax jurisdictions	17% (EU-blacklist rules)	5%, with the scope extended to low-tax jurisdictions
SDC on rental income	3% on 75% of gross rents	Abolished — rents taxed under income tax only
Crypto gains (individuals)	No dedicated rule; treatment decided case by case	Flat 8% under the new Article 20E
Share-based remuneration	Taxed as salary at progressive rates up to 35%	Flat 8%, subject to conditions
Corporate interest income	Passive interest: 17% SDC	SDC-free; all company interest taxed under the 15% corporate rate
Tax loss carry-forward	5 years	7 years
R&D expenses	100% deduction	120% super-deduction until 2030
Entertainment expenses	Deductible up to the lower of 1% of gross revenue or €17,086	Cap raised to the lower of 1% or €30,000
Personal tax-free threshold	€19,500	€22,000
Top 35% income tax band	From €60,001	From €72,001
Termination payments	Case-by-case treatment	First €200,000 exempt; flat 20% above
Corporate tax residency	Management and control test only	Management and control plus a new incorporation test
60-day residency rule	Required proof of not being tax resident anywhere else	That criterion removed — easier to qualify
Stamp duty	0.15%–0.2% on most contracts	Abolished for most transactions
Capital gains tax lifetime exemptions	€17,086 general / €25,629 agricultural land / €85,430 main residence	Raised to €30,000 / €50,000 / €150,000
"Property-rich" company threshold (CGT on share sales)	Shares caught when immovable property exceeds 50% of value	Threshold cut to 20%
Record keeping and payments	Looser practice	6-year record retention; rent deductible only when paid through a bank; key filings due by 31 January

Why the Tax Increase Cuts the Total Burden for Owner-Managed Companies

Here is the counterintuitive core of the reform. Take a Cyprus company with €100,000 profit whose sole shareholder lives in Cyprus, is domiciled there, and pays everything out as dividends.

• 2025 rules: €12,500 corporate tax, leaving €87,500. The 17% SDC on the distribution takes another €14,875. Total: €27,375 — an effective 27.4%.
• 2026 rules: €15,000 corporate tax, leaving €85,000. SDC at 5% takes €4,250. Total: €19,250 — an effective 19.25%.

That is €8,125 less tax on the same €100,000, despite the higher corporate rate. The break-even sits at a payout ratio of roughly 24%: distribute more than about a quarter of your profits and the new system costs you less. And under the old rules you could not simply hoard profits to dodge the SDC — the deemed distribution regime treated 70% of profits as paid out after two years anyway. That regime is gone. From 2026, retained profits face 15% and nothing else, for as long as you keep them in the company.

Two caveats keep this honest. First, the grandfathering rule: the 5% rate only covers profits earned from 2026 onward. Reserves built up to 31 December 2025 keep the old 17% SDC when distributed, and this transitional treatment runs until 31 December 2031. Companies sitting on large pre-2026 reserves should plan the sequencing of distributions with care. Second, the picture flips for non-doms: non-domiciled shareholders pay no SDC in either system, so for them the reform is a plain increase from 12.5% to 15%. Still low by EU standards, but an increase — our analysis of Cyprus corporate tax after the rise to 15% looks at how the island now compares with Ireland, Malta and the rest of the field.

Dividends: SDC Cut, DDD Abolished, Refunds for Old Payments

Three connected changes reshape how profits reach shareholders. The SDC rate on dividends paid to Cyprus-resident, Cyprus-domiciled individuals falls from 17% to 5% for post-2026 profits. The deemed dividend distribution rules — which forced SDC on 70% of profits after two years even when nothing was paid out — are abolished for profits arising from 1 January 2026. And a refund mechanism covers the transition: where a company already paid SDC under the old DDD rules and those profits are later actually distributed to non-residents or non-doms, the earlier DDD charge can be recovered.

The lawmakers paired the relief with teeth. A new anti-abuse rule taxes "concealed dividends" — benefits a company channels to shareholders without declaring a distribution — at 10%. And dividend payments to companies in EU-blacklisted or low-tax jurisdictions carry a 5% withholding tax. Rental income leaves the SDC net entirely: the old 3% charge on 75% of gross rents is gone, and rents are now taxed under income tax alone.

Crypto: A Flat 8% Under Article 20E

Until 2025, Cyprus had no dedicated rule for crypto disposals. Gains of a capital nature often escaped tax, trading profits were taxed in full, and the line between the two was a running argument with the Tax Department. The reform ends the ambiguity: a new Article 20E of the Income Tax Law taxes gains from crypto-asset disposals at a flat 8%. The same 8% flat rate applies to share-based remuneration such as employee stock options, subject to conditions — a sharp drop from progressive rates that reached 35%.

Personal Income Tax: Higher Threshold, Wider Bands

The tax-free threshold rises from €19,500 to €22,000, and every band above it widens. From 2026 the schedule reads: 0% up to €22,000; 20% from €22,001 to €32,000; 25% from €32,001 to €42,000; 30% from €42,001 to €72,000; and 35% above €72,001. Under the old schedule the 35% rate started at €60,001, so higher earners gain twice — from the bigger zero band and from the delayed top rate. Termination payments get a statutory rule for the first time: the first €200,000 is exempt and the excess is taxed at a flat 20%.

Capital Gains, Property and Stamp Duty

The lifetime CGT exemptions on Cyprus real estate roughly double or better: €30,000 for general disposals (up from €17,086), €50,000 for agricultural land (up from €25,629) and €150,000 for a main residence (up from €85,430). Working in the other direction, the "property-rich" test tightens: selling shares in a company now triggers CGT when Cyprus immovable property makes up more than 20% of the company's value, down from 50% — a change that catches far more holding structures than before.

Stamp duty, long a €0.15-per-€100 nuisance on contracts, is abolished for most transactions. Documents connected with immovable property remain the main category still in scope.

Compliance: The Strict Side of the Bargain

The rate cuts come bundled with discipline. Key filings move to a 31 January deadline. Books and records must be kept for six years. Rent is deductible for the payer only when it flows through a bank account — cash rent is dead as a tax expense. Together with the 10% concealed-dividend rule, the direction is clear: lower rates on clean, documented structures, and less patience for informal arrangements. A review of what your company can and cannot deduct is a sensible first step — our guide to deductible expenses for Cyprus companies covers the details, including the new entertainment cap of €30,000 or 1% of revenue, whichever is lower.

Residency: A New Test for Companies, an Easier One for People

Corporate tax residency now rests on two legs: the familiar management-and-control test and an incorporation test, so a company set up in Cyprus can no longer drift into being tax resident nowhere. For individuals, the popular 60-day rule loses its trickiest condition — you no longer need to prove you are not tax resident in any other country. Spend 60 days on the island, keep the required ties (a permanent home and Cyprus business or employment), and you qualify. If the reform has put relocation on your agenda, start with our complete guide to moving to Cyprus as a business owner.

What to Do Now: A Short Checklist

• Map your reserves. Split retained earnings into pre-2026 (17% SDC on distribution, until end-2031) and post-2026 (5%) pools, and plan distributions around the difference.
• Re-run your payout policy. Above roughly a 24% payout ratio, distributing beats the old regime; with DDD gone, full retention at 15% is now a genuine option too.
• Check refund claims. If your company paid SDC under the old deemed distribution rules, check whether later distributions to non-residents or non-doms unlock a refund.
• Move rent payments to the bank. Cash rent stops being deductible — fix this in January, not at year-end.
• Review crypto and option positions. The 8% flat rate may change when — and through which entity — you realise gains.
• Update your compliance calendar. The 31 January deadline and six-year retention duty need to be in your processes now.

Frequently Asked Questions

When did the Cyprus tax reform take effect?

Parliament passed the package on 22 December 2025 and the laws were published in the Official Gazette on 31 December 2025. The new rules apply from 1 January 2026 — there was no phase-in for the headline rates.

Do dividends from pre-2026 profits get the new 5% rate?

No. Distributions out of profits accumulated up to 31 December 2025 keep the old 17% SDC rate, and this grandfathering treatment applies until 31 December 2031. Only profits earned from tax year 2026 onward qualify for the 5% rate.

Is the 12.5% corporate tax rate gone for good?

Yes. The standard corporate income tax rate is 15% for tax years from 2026, aligning Cyprus with the OECD global minimum tax. The 12.5% rate applied for the last time to tax year 2025.

How are crypto gains taxed in Cyprus now?

Gains from the disposal of crypto assets are taxed at a flat 8% under the new Article 20E of the Income Tax Law. Before 2026 there was no dedicated rule and outcomes depended on whether activity counted as trading or a capital transaction.

Does the reform change the non-dom regime?

The core of the regime is untouched: non-domiciled Cyprus tax residents still pay no SDC on dividends and interest, and the 17-out-of-20-years domicile test still applies. A consultation-stage idea of extending non-dom status beyond 17 years against an annual charge did not make it into the enacted laws.

What happened to the deemed dividend distribution rules?

They are abolished for profits arising from 1 January 2026, so companies can retain profits indefinitely without a deemed SDC charge. SDC already paid under the old DDD rules can be refunded where those profits are later distributed to non-residents or non-doms.

How long can companies carry forward tax losses now?

Seven years, up from five. The extension applies alongside the existing group relief rules, giving loss-making ventures two extra years to absorb early losses against later profits.

Talk It Through Before You Restructure

The 2026 reform rewards clean structures and punishes improvisation — and the right answer depends on your reserves, your domicile status and where your shareholders sit. If you want a second pair of eyes on your numbers before you change your payout policy or your structure, get in touch with our team for a consultation. We work with these rules every day.