Cyprus Tax Reform - 2026 Key Changes and Implications for Businesses and Individuals

Effective 1 January 2026, Cyprus will implement the most significant tax reform in decades.

On 22 December 2025, the Cyprus House of Representatives voted to approve the key tax reform bills, marking the first major overhaul of the tax system in over 20 years.

The reform package was built around six legislative bills prepared by the Ministry of Finance and debated in Parliament following extensive public consultation and stakeholder input.

Below is a structured explanation of what’s changing, with legal context and practical implications.

Legislative Context

Submission to Parliament: On 30 October 2025, the government submitted six tax reform bills to the House of Representatives.

Parliament Vote: The core tax reform package was approved by Parliament on 22 December 2025.

Effective Date: Most measures take effect from 1 January 2026 and apply to the 2026 tax year starting on that date. Government of Cyprus

The laws amend major statutes including the Income Tax Law, the Special Defence Contribution (SDC) Law, Stamp Duty Law and other associated revenue and compliance

provisions.

1) Corporate Tax: From 12.5% to 15%

One of the headline changes is the increase in the corporate income tax (CIT) rate:

• The standard CIT rate rises from 12.5% to 15% for profits of tax years starting on or after 1 January 2026.

  
  

This adjustment aligns Cyprus with evolving global tax standards while maintaining a relatively competitive headline rate.

What to do now

• Update financial forecasts and effective tax rate models for 2026.

• Review intercompany pricing and structure to reflect the new headline rate.

2) Dividend & SDC Reforms

Deemed Dividend Distribution (DDD)

A longstanding feature of Cyprus tax law — the Deemed Dividend Distribution (DDD) rules — is abolished for profits earned from 1 January 2026.

This removes artificial tax triggers that previously taxed undistributed profits under certain conditions.

Special Defence Contribution (SDC)

• Actual dividend distributions to Cyprus tax-resident individuals are now taxed at 5% (down from 17%).

• SDC on rental income is abolished entirely.

Practical impact

• Owners and family businesses with significant retained earnings see a cleaner profit extraction framework.

• Landlords benefit from lower ongoing tax on rental income.

3) Personal Income Tax Redefined

The reforms overhaul individual income taxation:

Tax-Free Threshold & Brackets

• Tax-free threshold increases to €22,000.

• The personal tax brackets are reformulated to reduce tax on low and middle incomes:

  • €22,001–€32,000: 20%

  • €32,001–€42,000: 25%

  • €42,001–€72,000: 30%

  • €72,001: 35%

    
    

New Deductions & Credits

The legislation introduces targeted reliefs for:

• Families with children

• Rent and mortgage interest

• Education and green home upgrades

• Insurance premiums

  
  

What this means

• Many salaried individuals and families will see lower overall tax payments from 2026.

• Employers should update payroll systems to apply new thresholds.

4) Crypto & Equity-Based Remuneration

For the first time, the Cyprus tax code explicitly addresses digital asset gains:

• Crypto disposals are subject to a flat 8% tax.

• Gains from approved employee stock option schemes are also taxed at 8%.

Planning tip

• Crypto holders should start organizing cost basis and disposal records ahead of 2026.

• Fast growth companies can now offer better-defined stock-based compensation.

5) Loss Relief & Incentives

The reform modernises incentive structures:

• Loss carry-forward period extended from 5 to 7 years.

• Enhanced deductions for R&D, intangible investment and other qualifying expenses remain or are expanded.

• Certain caps (e.g., on entertainment expense deductions) are increased.

  
  

These measures support growing businesses and innovation-led firms.

6) Stamp Duty & Transactional Simplification

• Stamp duty is abolished for most transactions, except specific categories like real estate and certain banking/legal instruments.

  
  

This reduces transactional friction for many commercial and corporate actions.

7) Compliance & Enforcement Modernisation

The reform also strengthens tax administration and anti-evasion powers, including:

• Expanded information gathering and reporting

• e-payment and digital documentation requirements

• Enhanced audit and enforcement tools

Internal control priorityEmpowered tax authorities mean that robust documentation and compliance will be essential to avoid disputes.

8) Summary: Key Dates & Law

Milestone	Date
Six reform bills tabled in Parliament	30 Oct 2025
House of Representatives approval	22 Dec 2025
Legal effect for most provisions	1 Jan 2026

These legislative changes amend existing provisions in Cyprus tax law (including the Income Tax Law, SDC Law and related statutes) to replace outdated regimes with a modern, equitable structure.

Practical Next Steps for Businesses & Individuals

For Businesses

✔ Update budgets & tax forecasts under the new 15% CIT.

✔ Review dividend strategies with the lowered SDC regime.

✔ Sync transfer pricing and substance documentation with revised compliance requirements.

For Individuals & Families

✔ Re-run tax projections under new brackets and thresholds.

✔ Organise crypto and share records for 8% tax treatment.

✔ Update payroll withholding systems.

Conclusion

The Cyprus Tax Reform 2026 is not a simple rate change — it’s a comprehensive structural reform that modernises the tax code, balances revenue with fairness, and aligns Cyprus with global standards while preserving its attractiveness for investment and residency.

*This summary is based on legislation approved by the Cyprus House of Representatives and publicly released reform materials. Certain provisions remain subject to implementing regulations, administrative guidance and transitional rules. This document does not constitute tax advice.