Cyprus Tax Reform 2026

We have prepared dedicated guides for each audience affected by the reform — find the guide that applies to you at the bottom of this page.

The following are not affected by the reform and continue to apply:

• No withholding tax on dividends to non-residents (general rule — no WHT to individuals or companies, except the 5%/17% for low-tax/blacklisted jurisdictions as noted above)
• Participation exemption on dividend income — dividends received by Cyprus companies remain generally exempt from tax
• Participation exemption on disposal of securities — gains from disposal of shares, bonds, and other securities remain exempt from income tax
• No withholding tax on interest or royalty payments to non-residents (subject to conditions)
• Extensive double tax treaty network — 65+ treaties in force
• EU membership — access to EU Directives (Parent-Subsidiary, Interest & Royalties, Mergers)

IP Box Regime — Effective Rate: 3%

Under the Cyprus IP Box, 80% of qualifying profits from qualifying intellectual property assets (patents, copyrighted software, utility models, and other IP as defined) are treated as a deemed expense — meaning only 20% of qualifying profits are subject to CIT.

Effective rate: 15% × 20% = 3% (was 2.5% under the 12.5% CIT rate)

The regime is OECD-compliant (nexus approach) and applies to profits from the use or disposal of qualifying IP developed or acquired and further developed by the Cyprus company.

The R&D super deduction (additional 20%, extended to 2030) further enhances this — though it cannot be claimed on expenses relating to an asset already benefiting from the IP regime.

Notional Interest Deduction (NID) — Further Reduce Effective CIT

Companies financed through equity (new capital introduced from 1 January 2015 onwards) can claim a notional interest deduction on that equity. The deduction is calculated based on the yield of the 10-year government bond of the country where the company’s assets are employed.

This means equity-funded Cyprus companies — particularly holding and financing structures — can reduce their taxable income significantly, bringing the effective CIT rate closer to 3% (the NID cannot exceed 80% of taxable income).

The NID is especially relevant now that the headline rate is 15%, as the deduction provides a greater absolute benefit than it did under 12.5%.

Anti-abuse provisions are in place — the Commissioner may disallow the deduction where arrangements lack genuine economic substance.

Combined Impact

A Cyprus company that qualifies for the IP Box regime achieves an effective tax rate of 3%. A company utilising the NID on its equity base can also bring its effective rate down to 3%. For holding companies, the participation exemption means profits from dividends and share disposals remain largely untaxed, with no withholding tax on outbound distributions to non-residents.

The message: the headline rate went up, but Cyprus remains one of the most tax-efficient jurisdictions in the EU for well-structured operations.

• Non-dom regime preserved — Dividends and interest received by non-dom individuals remain fully exempt from SDC
• Extension option after 17 years — Once you’ve been Cyprus tax resident for 17 out of the last 20 years (and gain deemed domicile), you can now pay €250,000 per 5-year period (up to two extensions) to continue benefiting from the non-dom SDC exemption — provided your domicile of origin is outside Cyprus
• DDD abolished for 2026+ profits — No more forced deemed distributions. Non-dom shareholders were always exempt from SDC on deemed dividends, but were still subject to GeSY contributions under the DDD rules. With DDD abolished, non-doms will no longer be forced to pay GeSY on deemed distributions — only on actual dividends received
• Rental income — SDC removed — Rental income is now subject to Income Tax only, removing the previous double taxation

Constructive (Disguised) Dividends — New 10% Rate

The reform introduces constructive dividend provisions for Cyprus tax resident and domiciled shareholders. Where a company provides benefits, assets, or resources to a shareholder (or related person) without adequate commercial justification, these can be treated as disguised dividends and subject to 10% withholding tax.

While non-dom individuals are not subject to SDC on actual dividends, the constructive dividend rules apply specifically to domiciled individuals. Non-doms should still ensure clean separation between personal and company assets to avoid reclassification risk if their non-dom status changes.

Transitional Rules for Pre-2026 Profits

Dividends received from Cyprus tax resident companies out of profits earned up to 31 December 2025 remain taxed at 17% SDC if received on or before 31 December 2031 (for domiciled individuals). Non-doms remain exempt regardless. Planning the timing of distributions from pre-2026 retained profits is important for domiciled shareholders.

The reform aims to:

• Support economic resilience and competitiveness
• Reduce tax burden for households and businesses through targeted reliefs
• Promote research, innovation, and green transition
• Combat tax evasion and improve compliance
• Enhance tax fairness across income levels

When does the Cyprus tax reform take effect?

Most provisions took effect on 1 January 2026. Employee tax changes (new bands, deductions) apply from tax year 2026. Electronic rent payment becomes mandatory 1 July 2026.

What is the new corporate tax rate in Cyprus?

The corporate income tax (CIT) rate increased from 12.5% to 15% effective 1 January 2026. However, the effective rate can be significantly lower through the IP Box Regime (3% effective) and the Notional Interest Deduction (NID).

Is Cyprus still competitive for international businesses at 15%?

Yes. The 15% headline rate aligns with the OECD Pillar Two global minimum tax. More importantly, the effective rate for qualifying companies can be as low as 3% through the IP Box, and even lower when combined with the NID. The participation exemption (no tax on dividends and disposal of securities), no withholding taxes on outbound payments, stamp duty abolition, and the extensive treaty network ensure Cyprus remains one of the most attractive EU jurisdictions.

How do I claim the new child deductions?

Complete the TD59 form to claim €1,000 for your first child, €1,250 for your second, and €1,500 for third and additional children (income limits apply).

What happened to the deemed dividend distribution (DDD) rules?

DDD rules were abolished for profits earned in tax year 2026 onwards. Transitional rules apply for 2024–2025 profits. Non-dom shareholders who paid SDC under DDD rules are entitled to a refund.

Do I need to use electronic payment for rent?

Yes, from 1 July 2026, all rent payments in Cyprus must be made electronically. Rent payments not made electronically will not be tax deductible for the tenant.

How is crypto taxed in Cyprus now?

Crypto disposal gains (sale, swap, gift, payment) are taxed at a flat 8% rate. Losses are ring-fenced to the same tax year only. The definition of crypto-assets is anchored in the EU MiCA Regulation (2023/1114). Mining income is excluded from the 8% rate and is instead taxed under general Income Tax provisions.

What are the new constructive dividend rules?

The reform introduces provisions for “disguised dividends” where a company provides assets or benefits to a shareholder (or related persons) without adequate commercial justification. For Cyprus tax resident and domiciled individuals, these are subject to 10% withholding tax. Non-dom individuals remain exempt from SDC on such distributions.

We have prepared dedicated pages that go deeper into how the reform affects each group. Select the guide that applies to you:

• Employees & Salaried Individuals — Tax bands, deductions, TD59 form
• Business Owners & Shareholders — Dividends, deemed benefits, DDD abolition
• Companies & Corporate Entities — Corporate tax rate, compliance changes
• Property Owners & Landlords — Electronic rent, CGT changes, SDC removal
• Crypto & Digital Assets — 8% disposal tax, loss limitations

The 2026 tax reform introduces significant changes that may affect your tax position. Whether you need help understanding the impact on your Cyprus company, optimising your structure through the IP Box or NID, or ensuring compliance with the new deadlines and rules — we are here to help.

Contact us to discuss your tax reform questions