Taxes in Cyprus: A Guide for Individuals and Companies

Cyprus applies a 15% corporate tax rate from 2026 and its IP Box can produce an effective rate of about 3% on qualifying income. A qualifying non-dom is generally exempt from SDC on dividends and passive interest, but GHS and foreign tax may apply. Ordinary outbound dividends and interest, and royalties for rights used outside Cyprus, generally carry nil Cyprus withholding, subject to statutory defensive measures and other exceptions.

This guide covers every layer of the Cyprus tax system for 2025-2026: personal income tax, corporate tax, capital gains, VAT, the IP Box Regime, Non-Dom status, GESY contributions, and Cyprus International Trusts.

Cyprus Tax System Overview

The Cyprus tax system combines progressive personal income tax rates, a flat 15% corporate tax, and targeted incentive regimes, most notably Non-Dom status and the IP Box. These features make the island attractive to relocating individuals, international businesses, and holding structures alike.

Key structural advantages at a glance:

Personal Income Tax in Cyprus

Personal Income Tax Rates

Cyprus applies progressive rates to personal income:

Tax Residence Requirements

An individual qualifies as a Cyprus tax resident by meeting either of two tests:

1. Ordinary rule, reside in Cyprus for more than 183 days in a calendar year.
2. 60-Day Rule, reside in Cyprus for at least 60 days in a tax year, provided the individual:
   • Does not reside in any other single country for more than 183 days in the same tax year.
   • Carries on business, holds an office (e.g., directorship), or is employed in Cyprus.
   • Maintains a permanent residence (owned or rented) in Cyprus.

Non-dom is a legal and factual classification requiring analysis of domicile of origin and choice, statutory exceptions and the 17-of-20 test; it is not an automatic fixed 17-year award. Article 3D leaves non-dom status unchanged and instead creates a separate paid alternative SDC method for certain eligible deemed-domiciled persons. GHS and other taxes remain separate.

Scope of Taxation

Cyprus tax residents are taxed on their worldwide income, subject to the exemptions listed below. Non-Cyprus tax residents are taxed only on income accrued or derived from sources within Cyprus.

Exemptions

The following income types are exempt from personal income tax:

• Interest income, 100% exempt from income tax (taxed separately under SDC for domiciled individuals).
• Dividend income, 100% exempt.
• Profits from disposal of shares and other securities, 100% exempt.
• Remuneration from employment outside Cyprus, 100% exempt for salaried services rendered abroad for more than 90 days per year to a non-Cyprus employer.
• Lump sums, Lump sum payments from pension funds, provident funds, or gratuities are fully exempt.

Deductions

The following deductions are available for individuals:

• Donations to approved charities, 100% deductible.
• Life insurance premiums and pension fund contributions, deductible up to 1/6 of taxable income.
• Rental income, 20% of gross rental income, plus interest and wear-and-tear allowance for buildings.
• Preservation of listed buildings, deductible up to €1,200 per square metre.

50% Expatriate Exemption

An individual whose first employment in Cyprus began on or after 1 January 2022, and whose annual remuneration exceeds €55,000, may claim a 50% exemption on that employment income. To qualify:

1. The individual must not have been a Cyprus tax resident for at least 15 consecutive years immediately before starting their first employment in Cyprus.
2. The €55,000 threshold may be reached in the first year of employment or in a later year.

This exemption applies for 17 years from the start of qualifying employment and represents one of the most significant personal tax incentives in the EU. Individuals who already qualified under the earlier regime (remuneration above €100,000, for a 10 year period) continue to benefit under it until the end of that 10 year period.

Foreign Pension Income

Foreign pension income is taxed at a flat rate of 5% on amounts exceeding €5,000. Alternatively, individuals may elect to be taxed under the standard progressive rates if that produces a lower liability.

No Inheritance Tax

There is no inheritance or succession tax in Cyprus, abolished since January 2000. Assets can be passed to heirs without any local tax liabilities.

Non-Domicile Status and Its Benefits

Non-Domiciled (Non-Dom) individuals who are Cyprus tax residents enjoy exemption from the Special Defence Contribution (SDC) on passive income. This is the single most valuable tax benefit for expatriates and high-net-worth individuals relocating to Cyprus. Key details of Non-Dom status:

• Dividends, 0% SDC (versus 5% for domiciled residents), regardless of whether the income originates in Cyprus or abroad.
• Interest, 0% SDC (versus 17% for domiciled residents), except for interest arising in the ordinary course of business.
• Capital gains on securities, 0% tax on profits from the sale of shares, bonds, and debentures.

Comparison: Domiciled vs Non-Domiciled Tax Residents

Non-dom is a legal and factual classification requiring analysis of domicile of origin and choice, statutory exceptions and the 17-of-20 test; it is not an automatic fixed 17-year award. Article 3D leaves non-dom status unchanged and instead creates a separate paid alternative SDC method for certain eligible deemed-domiciled persons. GHS and other taxes remain separate.

Corporate Taxation in Cyprus

Corporate Tax Rate and Substance Requirements

Cyprus imposes a standard corporate tax rate of 15% on net profits, one of the most competitive rates in the European Union.

A company is taxed in Cyprus where its effective management and control is exercised. Increasingly, tax authorities also consider actual substance: the existence of a physical office, local employees with paid social insurance, and a genuine economic reason for the company's presence in the jurisdiction. Companies should ensure they maintain adequate substance to support their Cyprus tax residency.

Corporate Tax Deductions

Cyprus offers several deductions that can materially reduce the effective corporate tax burden:

1. IP income deduction, 80% of net profit from qualifying intellectual property (patents, software, utility models) is deductible as an expense.
2. Interest on subsidiary acquisition, Interest paid for the acquisition of 100% of a subsidiary's share capital is deductible, provided the subsidiary's assets are used in its business.
3. Notional Interest Deduction (NID), When new equity (share capital or share premium) is introduced, an annual notional interest deduction applies. The rate equals the yield on the 10-year government bond of the country where funds are employed, plus a 3% premium. The NID can offset up to 80% of the taxable profit of the company.

Losses Carried Forward and Group Relief

Tax losses may be carried forward for 7 years and set off against future profits. Group relief is available where one company holds at least 75% of the voting shares in another, or a third company holds 75% in both. Group relief extends to EU-resident and treaty-country companies, provided the foreign group company has exhausted all possibilities to use its losses in its own jurisdiction.

Intellectual Property (IP) Box Regime

The IP Box regime delivers an effective tax rate as low as 3% on qualifying income from intellectual property assets. It applies to revenues derived from patents, copyrighted software, and other qualifying IP. The regime incentivizes innovation-driven businesses to establish or relocate operations to Cyprus.

For more information, see our detailed guide on the IP Box Regime in Cyprus.

Dividends

Dividends received by a Cyprus company from another Cyprus tax-resident company are exempt from corporate tax. Dividends from foreign companies may also be exempt, provided:

1. The foreign company's income does not derive more than 50% from investment activities.
2. The foreign company is subject to tax at a rate above 5%.

Capital Gains Tax

Capital gains tax in Cyprus applies only to the disposal of immovable property situated in Cyprus (or shares in companies whose assets primarily consist of such property). The rate is 20%.

There is no capital gains tax on:

• Disposal of shares, bonds, debentures, or other securities.
• Sale of immovable property located outside Cyprus.
• Mergers and acquisitions involving qualifying share exchanges.

Withholding Taxes

Cyprus generally applies nil withholding to ordinary outbound dividends and interest, and to royalties for rights used outside Cyprus. Royalties for rights used in Cyprus can be taxable. Defensive measures can also apply to relevant EU non-cooperative jurisdictions and, from 2026, certain related or associated-company recipients in low-tax jurisdictions. Recipient-country and treaty taxation remain separate.

Special Defence Contribution (SDC)

SDC is imposed on certain passive income categories for Cyprus tax residents who are domiciled in Cyprus. Non-Dom individuals and non-residents are fully exempt.

Active interest income (arising from the ordinary course of business) is taxed under corporate income tax rather than SDC. Rental income from self-catering accommodations rented via online platforms is treated as business income and subject only to income tax, not SDC.

VAT in Cyprus

The standard VAT rate in Cyprus is 19%. Reduced rates apply in specific cases:

The reduced 5% rate applies to the first 130 m² and the first €350,000 of the property's value, and is available only where the total area does not exceed 190 m² and the total value does not exceed €475,000. To benefit from the reduced 5% rate on a primary residence, the buyer must submit a reduced VAT application to the Tax Department before or at the time of the purchase.

General Healthcare System Contribution (GESY)

The General Healthcare System (GESY) is Cyprus's universal healthcare system, financed through contributions on various income sources:

The maximum annual GESY contribution is capped at €4,770.

To learn more about GESY, see our guide on the Cyprus General Health System.

Cyprus International Trusts

Cyprus International Trusts are not subject to any separate tax regime. Taxation follows the beneficiary's tax residence, meaning if the beneficiary is a Non-Dom Cyprus tax resident, the trust income benefits from the same exemptions (0% SDC on dividends and interest, 0% capital gains on securities).

This transparent treatment, combined with Cyprus's favourable personal tax regime, makes Cyprus International Trusts an effective vehicle for wealth preservation and succession planning.

Conclusion

Cyprus offers a competitive but conditional framework: 15% corporation tax from 2026, an IP Box that may produce about 3% on qualifying income, non-dom SDC relief and a general nil-withholding rule for ordinary outbound payments. Eligibility, substance, defensive measures, GHS, recipient-country tax and treaty rules must be verified for each structure.

Understanding every layer, personal income tax, corporate deductions, NID, group relief, VAT, SDC, and GESY, is essential for optimising your position and ensuring compliance. If you require tailored advice or assistance navigating the Cypriot tax system, Philippou Law Firm is here to help. Our team of experienced lawyers specialises in tax planning, corporate law, and residency matters.

Contact us for a consultation to learn how we can support your tax and legal matters in Cyprus.