Cyprus Tax Reform 2026: What Changed and What Stayed the Same

The Cyprus tax reform that took effect on 1 January 2026 is the most significant overhaul of the island's tax code in over two decades. It was approved by Parliament on 22 December 2025 and the amending laws were published in the Official Gazette on 31 December 2025, with most measures applying from the start of 2026. The headline change is the increase in the corporate income tax rate from 12.5% to 15%, bringing Cyprus into line with the OECD and EU Pillar Two global minimum tax for large groups. But for most owner-managed businesses and resident individuals, the more consequential changes lie elsewhere: a sharp cut in the Special Defence Contribution (SDC) on dividends, the abolition of the deemed dividend distribution regime, a higher personal tax-free band, and longer loss carry-forward.

Crucially, the reform was surgical rather than wholesale. The features that made Cyprus attractive in the first place — the non-dom regime, the IP Box, the Notional Interest Deduction, the participation exemption and the absence of withholding taxes on most outbound payments — were deliberately preserved. This guide sets out, section by section, exactly what changed and what stayed the same, and ends with a practical "what to do now" checklist by taxpayer type. It is the hub for our detailed guides on corporate tax, personal income tax, dividends and the non-dom regime.

The 2026 reform at a glance

The table below summarises the changes that affect the most taxpayers. Each is explained in full further down, and the unchanged reliefs are listed in "what stayed the same".

Measure	Until 31 Dec 2025	From 1 Jan 2026
Corporate income tax rate	12.5%	15%
SDC on dividends (resident & domiciled)	17%	5%
SDC on rental income	3% on 75% of rent	0% (abolished)
Deemed dividend distribution	Applied	Abolished
Personal tax-free band	€19,500	€22,000
Tax loss carry-forward	5 years	7 years
Stamp duty	Applied to most documents	Repealed for most documents
Crypto-asset / share-scheme gains	Uncertain / ordinary rules	8% flat in defined cases

Why the reform happened

The reform increased the ordinary Cyprus corporate rate to 15%. This headline rate and the OECD/EU Pillar Two minimum effective tax are different calculations. Pillar Two generally applies to groups meeting the €750 million consolidated-revenue threshold, and a 15% domestic statutory rate does not by itself prove that a group's jurisdictional effective tax rate reaches 15% or eliminate a possible top-up tax. We cover the in-scope rules in our Pillar Two guide.

The corporate-rate increase was accompanied by changes to personal tax bands, dividend SDC and deemed distributions. Their net effect varies by profit year, shareholder residence and domicile, business profit, applicable deductions and distribution policy; a before-and-after calculation is necessary. For a fuller treatment of the company-level mechanics, see our tax advisory service.

Corporate income tax: 12.5% to 15%

The corporate income tax rate increased from 12.5% to 15% on company profits earned from 1 January 2026. Profits earned up to 31 December 2025 remain taxable at 12.5%, so groups with non-calendar accounting periods need to apportion. The increase applies across the board — there is no carve-out for small companies — but the wide network of exemptions that shelter much Cyprus-sourced income remains in place. Our corporate tax guide works through the computation in detail.

The company-level dividend exemption and the exemption for qualifying securities gains continue, subject to their separate exceptions and Cyprus-property capital gains rules. The IP Box regime also survives, delivering an effective rate as low as 3% on qualifying intellectual property income under the nexus approach — up from 2.5% previously, because the 80% deemed deduction now leaves the remaining 20% taxable at 15% rather than 12.5% (see the IP Box guide) — and the Notional Interest Deduction on new equity remains available. In practice, a well-structured Cyprus holding or financing company may still bear an effective rate well below the 15% headline.

The practical work for the 2026 transition is apportionment. A company with a calendar accounting period applies 15% to all profits arising in 2026. A company with a non-calendar period straddling 31 December 2025 must split its taxable result, applying 12.5% to the portion attributable to 2025 and 15% thereafter. Where income is lumpy — a large one-off gain or a year-end accrual — the basis of apportionment matters, and a simple time-based split may not reflect economic reality. Document the methodology in the tax computation so it can be defended on review.

It is also worth distinguishing the position of in-scope Pillar Two groups from that of ordinary domestic companies. For in-scope large groups, domestic corporate tax and any Pillar Two top-up must be calculated separately under the relevant ordering and effective-tax rules; the 15% headline rate alone is not a safe-harbour conclusion. For the typical owner-managed Cyprus company that sits well below the Pillar Two revenue threshold, the increase is simply a rise in the headline rate — the Pillar Two machinery never engages, but the 15% rate applies all the same.

Special Defence Contribution on dividends

The Special Defence Contribution is the tax that has historically applied to passive income — dividends, interest and rent — of Cyprus tax residents who are also Cyprus domiciled. Before the reform, SDC on dividends paid to a resident-and-domiciled individual was charged at 17%. From 2026, on profits earned from 1 January 2026, that rate falls to 5%. The full shareholder picture is in our dividends guide, and the mechanism across all passive income in the SDC guide.

This is a substantial reduction and significantly cushions the corporate rate increase for owner-managers who draw their company's profits as dividends. Non-domiciled residents are unaffected, because they continue to pay 0% SDC on dividends — the non-dom exemption is untouched (see below).

Two points of detail matter for resident-and-domiciled shareholders. First, the 5% rate applies to dividends out of profits earned from 1 January 2026; dividends paid in 2026 but sourced from pre-2026 reserves may fall under the previous treatment, so the reserve from which a distribution is made should be identified. Second, SDC sits alongside the General Healthcare System (GHS) contribution, which continues to apply to dividend income up to the annual cap. When modelling the all-in cost of extracting profit, both the 5% SDC and the GHS charge should be layered on top of the company-level 15%.

Abolition of deemed dividend distribution

The deemed dividend distribution (DDD) rules were abolished for profits earned from 1 January 2026. Under the old regime, a Cyprus company that did not distribute at least 70% of its after-tax accounting profits to resident-and-domiciled shareholders within two years was deemed to have distributed them anyway, triggering SDC on the notional dividend.

Removing the DDD is a meaningful simplification. Companies can now retain and reinvest profits without the threat of a deemed distribution charge, and shareholders are taxed only when an actual dividend is paid. This change works in tandem with the lower 5% SDC rate to make profit retention and timing far more flexible than before.

For practitioners, the abolition removes a recurring year-end exercise: there is no longer any need to compute the 70% threshold, track the two-year window, or reconcile actual distributions against the deemed amount to avoid an inadvertent charge. Groups that previously distributed dividends largely to manage their DDD exposure can now set distribution policy on commercial grounds alone. Profits earned up to 31 December 2025 remain governed by the old rules, so a final DDD assessment may still arise on legacy reserves (for example, on 2023 profits within their two-year window) — but for 2026 profits onwards the regime is simply gone.

Personal income tax bands

For individuals, the most visible change is the increase in the tax-free band to €22,000 of annual income, up from €19,500. The reform also introduced a revised band structure with a new top marginal rate of 35% above €72,000. The bands apply to an individual's taxable employment, pension and other income subject to income tax — the full detail is in our personal income tax guide.

Annual taxable income	Rate (from 2026)
€0 – €22,000	0%
€22,001 – €32,000	20%
€32,001 – €42,000	25%
€42,001 – €72,000	30%
Over €72,000	35%

To see the effect on a specific salary, use our income tax calculator; for the company side, the corporate tax calculator reflects the 15% rate.

Reliefs that continue alongside the bands

The 50% exemption for qualifying new high-earning residents remains available: an individual taking up first employment in Cyprus with remuneration above €55,000 a year can exempt half of that income for up to 17 years. Foreign pensions also keep the 5% flat-rate option on amounts over €5,000, allowing pensioners to elect the more favourable of the flat rate or the ordinary bands.

Tax losses and stamp duty

The general tax-loss carry-forward period was extended from five to seven years, subject to the statutory conditions and transition rules. The change does not automatically revive losses that had already expired; trace each loss by its tax year and claimant.

The Stamp Duty Laws were repealed from 1 January 2026 by Law 239(I)/2025. Documents that remained chargeable under the previous law and relevant transitional procedures still require review; confirm the signing date and document type before assuming no stamp duty is due.

Rental income and capital gains

SDC on rental income was abolished, moving from a positive charge to 0%. Rental income remains subject to ordinary income tax where applicable and may attract GHS contributions, but the defence contribution layer is gone, simplifying the taxation of Cyprus property income for resident-and-domiciled landlords — see our rental income guide.

On capital gains, the lifetime exemptions for disposals of Cyprus immovable property were increased. The general exemption rose to €30,000, the exemption for agricultural land to €50,000, and the exemption for a primary residence to €150,000. The capital gains tax rate on Cyprus immovable property remains at 20% (our capital gains guide has worked examples).

Capital gains lifetime exemption	From 2026
General exemption	€30,000
Agricultural land	€50,000
Primary residence	€150,000

Crypto-asset gains

The reform addressed the treatment of crypto-asset gains, which had previously sat in an uncertain space between trading income and capital gains. In defined cases, gains on crypto-assets may now be taxed at a flat rate of 8%. Article 20E includes sales, gifts, swaps and payments, restricts losses to same-year crypto disposal gains, and excludes mining-acquired assets. Frequency of trading alone is not the statutory exclusion (see our crypto tax guide). The same 8% flat rate was introduced for benefits arising under qualifying employee share and stock-option schemes, giving employers a simpler basis for incentivising staff.

New household allowances and employment measures

Alongside the higher tax-free band, the reform introduced a set of household tax allowances that reduce an individual's taxable income, subject to income thresholds. The headline reliefs are a deduction of up to €2,000 for eligible interest on a main-residence loan or rent paid, up to €1,000 for green and energy-efficiency home upgrades, and child allowances of €1,000, €1,250 and €1,500 per eligible parent for the first, second and third (or further) dependent child (doubled for single-parent families). These allowances are subject to family-income ceilings — broadly €40,000 for a single individual and €100,000 for a family, rising for larger families — so higher earners may see them restricted or withdrawn.

On the employment side, certain qualifying termination-related ex-gratia payments may be exempt up to €200,000, with the qualifying excess subject to a special 20% rate. Other payments require separate classification. From tax year 2026, resident individuals aged 25–70 must file even without income; income-based obligations also apply outside that range, and the 8% flat rate on qualifying share-scheme benefits noted above sits alongside these changes. To estimate the allowances you can claim and the tax saved, use our 2026 allowances calculator.

New 2026 measure	Treatment
First-home loan interest or rent	Allowance up to €2,000
Green / energy-efficiency upgrade	Allowance up to €1,000
Dependent children	€1,000 / €1,250 / €1,500 (1st / 2nd / 3rd+)
Qualifying termination-related ex-gratia payments	Special €200,000 exemption and 20% excess rate, subject to conditions
Crypto-asset gains / share schemes	Flat 8% in defined cases

What stayed the same: the non-dom regime

A qualifying non-dom Cyprus tax resident remains exempt from SDC on dividends and relevant interest during the statutory period. Rental SDC was abolished for all taxpayers from 2026. A separate alternative SDC method may be available after the usual 17-year period, subject to an application, approval and payment; it is not an automatic extension of non-dom status.

For internationally mobile individuals relocating to Cyprus, this is the single most important continuity in the reform. The 5% dividend SDC change simply does not reach them, because they pay 0% in the first place. Our non-dom advisory service can confirm eligibility, and the residency rules guide explains how you become resident in the first place.

What stayed the same: residency and incentives

The 183-day presence test remains a route to Cyprus tax residence. The 60-day route has additional statutory conditions concerning time abroad, a Cyprus home and Cyprus business, employment or office; review the rules applicable to the tax year and any treaty tie-breaker if another country also treats the person as resident.

• IP Box regime — retained unchanged in mechanics; the effective rate edges up from 2.5% to 3% on qualifying IP income, simply because the 20% taxable slice is now charged at 15% rather than 12.5%.
• Notional Interest Deduction — retained on new equity, reducing the effective corporate rate for equity-financed companies.
• Participation exemption — dividends received generally exempt; no tax on the disposal of securities.
• Outbound withholding is generally absent for ordinary non-resident dividends and interest, but low-tax and non-cooperative-jurisdiction measures and royalty source rules require payment-specific checks.
• 50% exemption for qualifying new high-earning residents, for up to 17 years.

How the reform affects you — by taxpayer type

The net effect depends entirely on who you are. Here is the practical bottom line for the most common profiles.

You are…	Net effect of the 2026 reform	What to do now
Owner-manager (domiciled)	Often neutral to positive — 15% corporate but dividend SDC cut 17%→5% and DDD gone	Reset distribution policy; revisit salary/dividend mix
Non-dom resident	SDC exemption on qualifying dividends and interest remains	Confirm residence, domicile and GHS position
Employee	Lower tax — €22,000 tax-free band + new household allowances	Claim the new allowances in your return
Landlord (domiciled)	Simpler — SDC on rent abolished; income tax still applies	Remove SDC-on-rent from cash-flow planning
Large multinational group	Ordinary 15% rate and separate Pillar Two calculation	Check in-scope status, effective rate and top-up exposure
Startup / loss-making	Potentially longer loss use; share-scheme relief requires approval	Track loss years and scheme eligibility

Key dates and transitional timing

Because the reform turns on the date profits arise, timing is everything in the first year or two.

• 22 December 2025 — reform package approved by Parliament.
• 31 December 2025 — amending laws published in the Official Gazette.
• 1 January 2026 — 15% corporate rate, 5% dividend SDC, €22,000 tax-free band, 7-year losses and the new allowances take effect for profits/income arising from this date.
• Pre-2026 profits — still 12.5% corporate tax; dividends from pre-2026 reserves may keep 17% SDC; a final deemed distribution can still arise on older retained profits.
• Non-calendar year-ends — apportion the taxable result across 31 December 2025 and document the basis.

Our 2026 tax calendar sets out the filing and payment deadlines that sit on top of these substantive changes.

What this means in practice

For owner-managers, the combined effect depends on taxable profit, the year the distributed profit arose, domicile, GHS and the timing of actual distributions. The longer loss carry-forward and stamp-duty repeal affect different transactions. Compare the complete 2025 and 2026 results rather than assuming the reform always lowers tax.

The practical priorities for 2026 are to apportion profits correctly across the rate change, revisit distribution policy now that the DDD threat is gone, claim the new personal allowances, and confirm that any reliance on the IP Box, NID or participation exemption still holds on its own terms. If you would like a structure reviewed against the new rules, get in touch and we will model the before-and-after position for your company and its shareholders through our tax advisory and tax compliance teams.