In December 2025, the Cyprus Parliament enacted a comprehensive tax reform package representing one of the most significant overhauls of the Cyprus tax system in over a decade. The reform applies from 1 January 2026, subject to transitional provisions, and reshapes personal, corporate and specialised tax regimes, while materially strengthening tax compliance and enforcement.
OVERVIEW OF MAIN CHANGES
The main changes brought by the reform package include, amongst others:
- CORPORATE TAXATION
- CORPORATE INCOME TAX RATE: The corporate income tax rate increases from 12.5% to 15%
- TAX LOSSES CARRY FORWARD: Tax losses may now be carried forward for up to 7 years, extended from the previous 5-year limit.
- DEEMED DIVIDEND DISTRIBUTION: abolished for 2026 profits onwards. Law provides transitional rules for prior years.
- SDC CONTRIBUTION: Special Defence Contribution (SDC) on actual dividends derived from post-2026 profits reduced from 17% to 5% for Cyprus tax-resident and domiciled individuals.
- WITHHOLDING TAX: introduced on dividends paid to entities located in low-tax or non-cooperative jurisdictions.
- SUBSIDIARIES: Interest expense incurred for acquiring an investment (100%) in a subsidiary are not deductible if the subsidiary is located in a jurisdiction on the EU blacklist
- EMPLOYEE SHARE SCHEMES AND STOCK OPTIONS: Approved share-based remuneration schemes are taxed at 8%
- DISGUISED DIVIDENDS: The concept of disguised dividends is introduced for direct and indirect shareholders who are natural persons. A tax rate of 10% applies on the disguised dividends (double the normal 5% SDC rate on dividends).
- ENTERTAINMENT EXPENSES: Deductible limit increased to EUR 30,000
- PERSONAL TAXATION
- TAX BANDS: Individual tax bands have been revised. Tax-free threshold increased to €22,000 (from €19,500). Expansion of income tax brackets, with the 35% higher rate applying to income exceeding €72,000.
- FAMILY BASED TAX RELIEFS: Introduction of household-based reliefs subject to income caps ranging from €40,000 to €200,000, depending on family composition.
- DEDUCTIONS FOR CHILDREN AND HOUSING RELATED MATTERS:
- €1,000 for the first child, €1,250 for the second child, €1,500 for the third and subsequent children.
- Student children up to the age of 24 qualify as dependants.
- Loan interest on a primary residence deductible up to €2,000, provided the loan is performing.
- Rent paid on a primary residence deductible up to €2,000, provided payments are made electronically.
- GREEN TRANSITION DEDUCTIONS: Deductions of up to €1,000 for energy efficiency upgrades or the purchase of a new electric vehicle.
- TAX RESIDENCY: Easier access to Cyprus tax residency earlier in the tax year, without strict dependency on exclusivity of residency in other jurisdictions
- TARGETED REFORM
- CRYPTO-ASSET TAXATION: profits from the disposal of crypto-assets are subject to a flat 8% tax. Losses may be offset against gains within the same tax year.
- CAPITAL GAIN TAX:
- Increase in lifetime CGT exemptions: €30,000 (general), €50,000 (agricultural land), €150,000 (primary residence).
- Property exchange relief: CGT relief introduced for qualifying property-for-development exchange arrangements(αντιπαροχή).
- STAMP DUTY: Stamp Duty was abolished.
- SDC & RENTAL INCOME: Full abolition of SDC on rental income (Income tax and General Health system continues to apply).