Cyprus Tax Reform 2026 — A Comprehensive Legal Update
Cyprus has enacted an extensive legislative package reshaping its tax framework, through six amending laws published in the Official Gazette on 31 December 2025 and entering into force on 1 January 2026.
This reform constitutes the most significant modernisation of the Cyprus tax system in decades, addressing corporate and personal taxation, compliance, and administrative efficiency, while aligning the jurisdiction with the OECD Pillar Two international minimum tax standard.
1. Legislative Framework
The reform is implemented through the following laws:
(a) Income Tax (Amending) (No. 4) Law of 2025 – Law No. 244(I)/2025
(b) Special Defence Contribution (Amending) (No. 4) Law of 2025 – Law No. 245(I)/2025
(c) Capital Gains Tax (Amending) (No. 3) Law of 2025 – Law No. 242(I)/2025
(d) Assessment and Collection of Taxes (Amending) (No. 2) Law of 2025 – Law No. 243(I)/2025
(e) Collection of Taxes (Amending) (No. 2) Law of 2025 – Law No. 241(I)/2025
(f) Stamp Duty (Abolition) Law of 2025 – Law No. 221(I)/2025
Together, these laws redefine the substantive and procedural foundations of Cyprus taxation aiming to offer greater transparency and administrative efficiency while retaining competitiveness for international investors.
TAX REFORM 2026
Legal Update
2. Corporate Tax
The corporate income tax rate increases from 12.5% to 15%, aligning Cyprus with the OECD’s global minimum tax threshold.
This adjustment is accompanied by measures designed to preserve Cyprus’s competitive edge:
(a) the loss carry-forward period extends from five to seven years;
(b) the R&D super-deduction of 120% for qualifying expenditure is maintained until 2030;
(c) the maximum deductible entertainment expenses rise to €30,000; and
(d) a flat 8% tax applies to profits from the disposal of crypto assets and to share-based remuneration under approved employee incentive schemes, with a total benefit cap of €1 million over ten years.
Ex gratia payments upon termination of employment are taxed at 20% after a €200,000 tax-free threshold.
These measures collectively aim to promote innovation, digitalisation, and sustainable growth within a modernised corporate tax framework.
3. Dividends, Investment Income and Special Defence Contribution
The Special Defence Contribution (the “SDC”) regime is significantly revised.
Key changes are the following:
(a) The deemed dividend distribution rule is abolished for profits earned after 1 January 2026, allowing companies to retain earnings freely.
(b) The SDC rate on actual dividend distributions decreases from 17% to 5% for profits generated after 2026.
(c) The SDC on rental income is abolished.
(d) A 5% withholding tax applies to dividends paid to companies in low-tax jurisdictions.
(e) The payment of SDC on foreign dividends and interest is simplified, with a single payment upon submission of the income tax return.
(f) For individuals who have been non-domiciled residents for over 17 years, a lump-sum alternative regime is introduced, allowing the payment of €250,000 per five-year period in lieu of annual SDC liabilities.
These changes aim to simplify dividend taxation, strengthen compliance, and preserve the appeal of Cyprus as a holding jurisdiction.
4. Personal Income Tax
The reform introduces new income tax brackets and raises the tax-free threshold from €19,500 to €22,000, reshaping the progressive rate structure as follows: 20% for income between €22,001 and €32,000; 25% for income between €32,001 and €42,000; 30% for income between €42,001 and €72,000; and 35% for income above €72,000.
Additional relief measures are introduced for families and sustainable investments:
(a) tax allowances per parent of €1,000 for the first child, €1,250 for the second, and €1,500 for each subsequent child, with eligibility linked to family income thresholds;
(b) a deduction of up to €2,000 for mortgage interest or rent on a primary residence;
(c) a deduction of up to €1,000 for green investments or the purchase of an electric vehicle; and
(d) a deduction of up to €500 for home insurance covering natural disasters, as well as for life and disability insurance premiums.
These measures reinforce the social and environmental orientation of the tax system while ensuring equitable distribution of the tax burden.
The personal income tax reform does not alter the existing income tax exemptions available to individuals relocating to Cyprus for employment. The 50% exemption on remuneration exceeding €55,000 per annum for individuals taking up first employment in Cyprus continues to apply for a period of up to 17 years, while the 20% exemption (or €8,550, whichever is lower) remains available for a period of seven years for individuals earning less than €55,000. These measures, which have been central to Cyprus’s strategy to attract international talent, remain unaffected by the 2026 amendments and continue to operate alongside the revised income tax brackets.
5. Capital Gains Tax
The Capital Gains Tax (Amending) (No. 3) Law of 2025 modernises and rationalises the regime. Lifetime exemptions are increased substantially, with the general exemption rising to €30,000, the agricultural land exemption to €50,000, and the primary residence exemption to €150,000. The definition of immovable property now captures indirect ownership through shares where at least 20% of a company’s value derives from property in Cyprus (reduced from the previous 50% threshold).
Additionally, the exchange of immovable property and transfers involving consideration in kind qualify for exemption, while the Tax Commissioner is authorised to withhold consent for a transfer where either party has outstanding tax liabilities.
These measures aim to enhance transparency, prevent tax avoidance, and support the growth of the domestic real estate market.
6. Abolition of Stamp Duty
A milestone change introduced by the Stamp Duty (Abolition) Law of 2025 (Law No. 221(I)/2025) is the complete abolition of stamp duty. All stamp duty laws from 1963 to 2025 are repealed as of 1 January 2026, meaning that no document or transaction executed from that date onwards will attract stamp duty in Cyprus.
According to the Tax Department announcement, documents executed and signed on or before 31 December 2025 remain subject to stamp duty under the pre-existing laws and must be stamped in accordance with the procedures in force at that time. Licensed stamp agents may continue to sell existing stock solely for such purposes. The use of physical stamps for fees under other departmental legislation may continue temporarily until new payment arrangements are issued by the competent authorities.
7. Administrative and Compliance Reforms
The Assessment and Collection of Taxes (Amending) (No. 2) Law of 2025 introduces modernised compliance mechanisms. It mandates the submission of tax returns by all residents aged twenty-five or above, regardless of income level, and extends the corporate return filing and payment deadline to 31 January of the second year following the tax year. The threshold for mandatory audited financial statements is increased to €120,000 in annual gross income. The period for filing objections to tax assessments is extended to sixty days, while rent payments within Cyprus must now be made via traceable methods such as bank transfer, card payment, or bank cheque.
The Tax Commissioner gains enhanced enforcement powers, including the right to suspend a business’s operations for up to ten days in cases of persistent non-compliance or obstruction of audits, following three written notices. These measures reflect a decisive shift towards a more robust, transparent, and digitally integrated tax administration.
8. Enhanced Tax Recovery
The Collection of Taxes (Amending) (No. 2) Law of 2025 introduces a mechanism to secure the collection of outstanding tax liabilities. Where a taxpayer owes more than €100,000, the Tax Commissioner may register an encumbrance on the taxpayer’s shares, preventing their transfer until the debt is cleared. The law provides a structured process for registration, notification to the Registrar of Companies, and judicial review before the Administrative Court. This tool strengthens enforcement and protects public revenue against dissipation of assets.
9. Conclusion
The 2026 tax reform represents a decisive evolution of Cyprus’s tax system, balancing international obligations with domestic competitiveness. Although the increase in the corporate tax rate marks a structural shift, the combination of abolished stamp duties, reduced SDC rates, expanded exemptions and deductions, and enhanced administrative efficiency ensures that Cyprus remains a preferred jurisdiction for business and investment.
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This publication is intended for general information purposes only and does not constitute legal advice. For tailored advice on how these changes may affect your business operations, corporate structures or personal tax position, please contact us at info@aptuslegal.com