Cyprus - Tax Reform Includes Corporate Tax Rate Increase
Updated: April 23, 2026
Cyprus has introduced a comprehensive tax reform package effective from 1 January 2026, bringing substantial changes that will affect businesses operating within the jurisdiction. The reform aligns Cyprus with international tax developments while offering targeted incentives to support innovation and investment.
Among the most notable changes is the increase in the corporate income tax rate from 12.5% to 15%, in line with global minimum tax requirements. At the same time, the reform introduces enhanced deductions for research and development (R&D) and reduces the Special Defence Contribution (SDC), aiming to maintain Cyprus’ competitiveness as a business hub.
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Corporate Income Tax
The corporate tax rate rises to 15%, and companies incorporated in Cyprus are now automatically considered Cyprus tax residents unless a relevant double tax treaty provides otherwise. The tax loss carry-forward period has been extended from five to seven years.
Group relief rules have been tightened, requiring companies to first offset their own carried-forward losses before utilising losses from other group entities. Additionally, intangible assets with an indefinite useful life must now be amortised over 20 years, instead of the previous 10-year period.
To encourage innovation, a 20% super deduction applies to qualifying scientific research and R&D expenditure incurred between 2025 and 2030.
Certain expenses are now restricted or non-deductible. These include ex-gratia payments to employees (such as termination or retirement payments) and interest on the acquisition of non-business assets, with limited exceptions. On the other hand, allowable entertainment expenses have increased to EUR 30,000 (subject to a 1% revenue cap), and costs related to stock exchange listings may be deducted up to EUR 300,000 under specified conditions.
Additional changes include the abolition of premium tax for life insurance companies, revised thresholds for transfer pricing documentation, and the taxation of interest income under corporate tax rules.
From 2031, gains from the redemption of fund units exceeding acquisition cost will be treated as dividends and taxed accordingly. Furthermore, a flat 8% tax has been introduced on gains from the disposal of crypto assets (excluding mined assets), with losses restricted to offsetting gains within the same tax year.
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Capital Gains Tax
The rules governing capital gains tax have also been amended. The threshold for determining whether shares derive value from immovable property has been reduced from 50% to 20%. In addition, the exemption previously available for shares listed on the Cyprus Stock Exchange Emerging Companies Market has been abolished, with relief now limited to companies listed on regulated markets.
Stamp Duty
The stamp duty regime has been fully abolished under the new reform.
Special Defence Contribution (SDC)
Significant changes have been made to the SDC framework. The rate on dividends received by Cyprus tax resident and domiciled individuals has been reduced from 17% to 5% for profits generated from 1 January 2026.
The deemed dividend distribution (DDD) rules have been abolished for profits arising from 2026 onwards, although transitional provisions remain in place for earlier years until the end of 2027.
The definition of dividends has been broadened to capture a wider range of distributions, including certain capital reductions and liquidations. In addition, a 10% tax applies to “disguised dividends,” such as private use of company assets or transfers of assets to shareholders below market value.
Other measures include a reduced 3% tax rate on interest from certain government bonds and the complete abolition of SDC on rental income.
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Assessment and Collection of Taxes
The reform also introduces administrative changes aimed at improving tax compliance. Partnerships are now required to file tax returns, and the statute of limitations has been set at six years from the date of filing.
The Tax Commissioner has been granted expanded enforcement powers, including the ability to impose higher penalties, suspend business operations, and register liens on corporate shares for unpaid taxes. Directors remain liable for actions taken during their tenure, even if they resign before proceedings are initiated.