Cyprus Tax Reform 2026: What Changed and What Remains the Same for Businesses and Individuals

Cyprus has entered a new phase in the evolution of its tax framework. On 22 December 2025, the House of Representatives approved a comprehensive package of tax amendments, representing the most extensive reform of the Cyprus tax system in more than twenty years. With most measures taking effect from 1 January 2026, the reform reshapes the taxation of individuals, companies, shareholders, and property transactions, while simultaneously strengthening the tax administration and enforcement framework.

The Cyprus Tax Reform 2026 is not limited to headline rate changes. It represents a structural recalibration of how income is taxed, how profits are distributed, how real estate is treated, and how compliance obligations are enforced. At the same time, the reform deliberately preserves the legal and tax pillars that have long supported Cyprus’ position as a stable, competitive and credible EU jurisdiction for business, investment and relocation.

This article sets out, in a structured and practical manner, what has changed, what has remained the same, and how individuals and businesses should approach planning under the new framework.

The Direction and Logic of the Reform

The reform reflects three parallel policy directions that run consistently throughout the legislative package:

• Targeted household and social support, achieved through higher tax-free thresholds and income-tested deductions, rather than broad, untargeted relief.
• A fundamental reworking of shareholder taxation, particularly in relation to dividends, through the abolition of deemed dividend distribution for new profits and the reduction of the Special Defence Contribution on actual dividends.
• A strengthened compliance and enforcement environment, with broader filing obligations, traceable payment requirements, and expanded administrative powers for the Tax Commissioner.

Importantly, these changes are not implemented in isolation. They are balanced by the conscious preservation of Cyprus’ core tax architecture, ensuring continuity and predictability for long-term planning and investment.

Key Changes for Individuals

1. Personal Income Tax Bands and Increased Tax-Free Threshold

From 1 January 2026, the tax-free threshold for individuals increases to €22,000, accompanied by a restructuring of the progressive income tax bands:

• 0% on income up to €22,000
• 20% on income from €22,001 to €32,000
• 25% on income from €32,001 to €42,000
• 30% on income from €42,001 to €72,000
• 35% on income exceeding €72,001

This adjustment has a tangible impact across the income spectrum. For employees and self-employed individuals, it alters not only the marginal tax rates but also the overall effective tax burden, with direct implications for payroll withholding, bonus structuring, and net income planning. For many middle-income earners, the revised structure provides measurable relief while preserving progressivity at higher income levels.

2. Family and Household Allowances (Income-Tested Deductions)

A central feature of the Cyprus Tax Reform 2026 is the introduction of targeted deductions linked to household income and family composition. These deductions operate as reductions of taxable income and apply only where the relevant income thresholds are met.

2.1 Income thresholds for eligibility

Eligibility is assessed by reference to annual income and household status, determined as at 31 December of the relevant tax year.

• For spouses or cohabitees, eligibility is determined by combined household income, with thresholds that vary depending on the number of dependent children:
  • Up to €90,000 where there are no dependent children
  • Up to €100,000 where there are one or two dependent children
  • Up to €150,000 where there are three or four dependent children
  • Up to €200,000 where there are five or more dependent children
• For single individuals, the relevant annual income threshold is up to €40,000.

Where the applicable threshold is satisfied, the deductions are available to each spouse or cohabitee, or to the single individual, as applicable. This design is particularly relevant in dual-income households, as it allows relief to be spread across both spouses rather than concentrated in a single taxpayer.

Categories of allowable deductions

• Child allowance: A child allowance is granted per spouse or cohabitee, with increasing amounts for the first, second, and subsequent dependent children. Importantly, dependent children include students up to the age of 24, extending relief to families supporting children through higher education, a period often associated with the highest household costs.
• Housing allowance: A housing deduction of up to €2,000 per spouse or cohabitee is available for either interest on a performing loan used to acquire a primary residence or rent paid for a primary residence. This approach recognises both ownership and long-term renting as legitimate housing models and provides flexibility across different household circumstances.
• Green transition allowance: A deduction of up to €1,000 per spouse or cohabitee applies to expenditure on energy upgrading of a primary residence or the purchase of a new electric vehicle. This aligns personal tax relief with broader environmental and sustainability objectives.
• Home insurance allowance: A further deduction of up to €500 per spouse or cohabitee applies to insurance covering natural disasters, reflecting an increased policy focus on household resilience and risk management.

Together, these allowances provide meaningful support but also introduce a more technical eligibility framework, making accurate income assessment and documentation increasingly important.

3. Foreign Pension Income

The special regime for foreign pension income remains in place and is updated. Cyprus tax residents receiving pension income from abroad may continue to elect annually between taxation under the normal progressive income tax rates or a flat 5% tax on pension income exceeding €5,000 per year.

This regime remains a key factor for retirees relocating to Cyprus, particularly when combined with Cyprus’ tax residency rules and extensive network of double tax treaties.

4. Termination Payments and Expanded Individual Deductions

The reform clarifies the taxation of ex gratia lump-sum payments made upon termination of employment. Where such payments are made due to termination, a €200,000 tax-free amount applies, with any excess taxed at a flat rate of 20%. This clarification is particularly relevant for senior employees, executives, and negotiated exit arrangements.

In parallel, the scope of allowable deductions is expanded to include insurance premiums covering permanent or partial incapacity, in addition to life insurance, supporting broader personal risk planning.

5. Increased Capital Allowances for Specific Sectors

Increased capital allowances of 20% are introduced for expenditure on machinery and installations used for agricultural or livestock production, after deducting any subsidies. This measure supports productivity and investment in sectors with longer capital cycles and strategic importance.

Dividends and Special Defence Contribution (SDC)

1. Abolition of Deemed Dividend Distribution for Post-2026 Profits

One of the most structurally important changes is the abolition of deemed dividend distribution in respect of profits earned after 1 January 2026. For many years, deemed distribution created tax outcomes disconnected from commercial reality, particularly where profits were retained for reinvestment or working capital.

Under the new framework, post-2026 profits are no longer subject to automatic shareholder-level taxation through deeming. Taxation is generally triggered only upon actual distributions, restoring a closer alignment between tax and economic substance. For planning purposes, the distinction between pre-2026 and post-2026 profit pools becomes critical.

2. Reduced SDC on Actual Dividends

For actual dividends distributed out of post-2026 profits, the SDC rate is reduced from 17% to 5%. This significantly lowers the tax cost of distributing new profits for Cyprus tax resident individuals and materially affects dividend policy and shareholder extraction strategies for owner-managed businesses.

3. Concealed Dividends and Anti-Avoidance

The removal of deemed distribution is balanced by the introduction of a targeted anti-avoidance rule addressing concealed dividends. Where value is transferred to shareholders or connected persons in a manner that, in substance, represents a distribution of profits, a 10% SDC may apply. This elevates the importance of substance, arm’s length pricing, and proper documentation in shareholder-related transactions.

4. Outbound Dividends to Low-Tax Jurisdictions

A 5% withholding tax is introduced on dividends paid to companies resident in jurisdictions classified as low-tax. This measure reinforces Cyprus’ alignment with EU and OECD anti-avoidance standards and increases the relevance of recipient jurisdiction analysis in group structures.

5. Rental Income: abolition of SDC and alignment with income tax

The SDC previously imposed on rental income is abolished, leaving rental income taxable solely under income tax rules. The removal of the well-known “3% on 75%” SDC mechanism improves coherence within the tax system and eliminates an additional layer of taxation that was often perceived as administratively burdensome rather than policy-driven.

In practice, this simplifies tax treatment for individuals and entities deriving rental income from immovable property in Cyprus, while preserving income tax as the sole charging provision.

6. Interest income and SDC: reduced rates and simplified payment mechanics

Certain categories of interest benefit from reduced SDC rates, and the payment of SDC on foreign dividends and interest is simplified by consolidating payment into a single instalment upon submission of the income tax return.

In particular, the SDC withholding tax rate on interest arising from government bonds of another EU Member State and on deposits of the Health Insurance Fund is reduced to 3%. In addition, the reform links the payment of SDC on income from foreign dividends and foreign interest to the filing of the income tax return, replacing the previous two-instalment system with a single payment, which is especially relevant for individuals with cross-border investment income.

7. Non-Dom Long-Stay Alternative

For non-domiciled individuals who have completed 17 years of Cyprus tax residency, an alternative taxation option is introduced, allowing continuation for two consecutive five-year periods subject to a lump-sum payment per period. This provision formalises the long-term treatment of non-dom individuals while preserving planning certainty.

Key Changes for Businesses

1. Corporate Income Tax Increased to 15%

From 1 January 2026, the corporate income tax rate increases from 12.5% to 15%. While this is a clear headline change, Cyprus remains one of the more competitive corporate tax jurisdictions within the European Union. A 15% rate continues to position Cyprus among the lower-tax EU countries, particularly when assessed together with the participation exemption, the IP Box regime, the Notional Interest Deduction, improved post-2026 dividend taxation, and the repeal of stamp duty.

2. Loss Carry-Forward

The loss carry-forward period is extended from five to seven years, benefiting businesses with longer investment cycles, including start-ups, technology-driven companies, and capital-intensive projects.

3. R&D Incentives and Business Deductions

The 120% super-deduction for qualifying R&D expenditure on intangible assets is extended until 2030, reinforcing Cyprus’ support for genuine innovation. In addition, the maximum deductible entertainment expenses increase to €30,000, reflecting commercial reality in business development and client-facing sectors.

4. Crypto-Assets and Employee Share Schemes

The reform introduces specific tax treatment for crypto-asset gains, subject to a flat 8% rate with same-year loss offset, and for benefits arising from approved employee share schemes, also subject to a special 8% regime within statutory limits. These measures provide long-awaited clarity for modern remuneration and investment structures.

Capital Gains Tax and Real Estate

1. Increased Lifetime CGT Exemptions

As part of the Cyprus Tax Reform 2026, the lifetime exemptions available under the Capital Gains Tax (CGT) regime have been materially increased, reflecting the significant appreciation of real estate values and changing household mobility patterns over the past decade.

The revised lifetime exemptions are as follows:

• General CGT exemption: The general lifetime exemption is increased from €17,086 to €30,000, applying to qualifying disposals subject to CGT.
• Agricultural land exemption: The lifetime exemption for disposals of agricultural land is increased from €25,629 to €50,000, providing enhanced relief for landowners and supporting agricultural property transfers within families and between generations.
• Primary residence exemption: The lifetime exemption for the disposal of a primary residence is increased from €85,430 to €150,000, significantly enhancing relief for individuals disposing of their main home, subject to the existing qualifying conditions.

These increases represent a meaningful social and economic adjustment to the CGT framework. In practical terms, they reduce the CGT burden on individuals and families in a market where residential property values have risen substantially, while preserving the core structure and integrity of the CGT system.

2. Property-Rich Companies

The reform tightens the real estate-linked CGT perimeter by reducing the indirect value threshold from 50% to 20%. This directly affects structures where Cyprus real estate is held through corporate vehicles and disposed of via share sales rather than direct asset transfers.

The reform also introduces a framework for determining disposal proceeds in cases where a company’s market value is essentially represented by the market value of Cyprus immovable property. In practical terms, this allows the consideration declared on a share disposal to be assessed by reference to the underlying property value, taking into account relevant assets and liabilities, thereby strengthening the ability of the tax framework to address under-valuation in indirect real estate exits.

3. Compliance Linked to Property Transfers

The Tax Commissioner is granted the power to withhold consent to property transfers where the parties involved are not fully tax compliant, elevating tax compliance to a transaction-critical issue in real estate deals.

Stamp Duty Repealed

The repeal of the Stamp Duty Law removes a long-standing source of transactional friction in Cyprus. In a jurisdiction where commercial documentation is a daily reality—covering financing arrangements, share transfers, shareholder agreements, service contracts and corporate governance documentation—the removal of stamp duty reduces procedural drag and supports faster execution of deals. For cross-border parties in particular, the change contributes to a more streamlined documentation experience and improves overall transaction efficiency.

Tax Administration, Filing and Enforcement

The reform significantly expands filing obligations and enforcement tools. All Cyprus tax residents aged 25 and above must submit an annual income tax return, partnerships are brought into the mandatory filing net, and corporate tax return and payment deadlines are aligned. From July 2026, rent payments exceeding €500 must be made through traceable banking methods. The Tax Commissioner is also granted enhanced powers to address serious and repeated non-compliance.

In addition, the gross income threshold for mandatory submission of audited accounts by individuals is increased from €70,000 to €120,000, recalibrating the scope of individual audit compliance in line with updated income realities.

What Remains the Same – Core Pillars Preserved

• IP Box regime: The IP Box regime remains fully in force under the nexus approach. For technology, software and IP-driven businesses, this preserves a central pillar of Cyprus’ innovation offering and provides continuity for structures where qualifying IP development and nexus substance are key components of effective planning.
• Notional Interest Deduction (NID): The Notional Interest Deduction remains available and continues to support equity-funded structures such as holding companies, financing vehicles and investment SPVs. It remains a meaningful tool for capital structure planning and can materially influence effective outcomes where new equity funding is part of the model.
• No capital gains tax on disposal of securities: Cyprus continues, as a general principle, not to impose CGT on disposals of securities. The key change is not the principle itself, but the tightening of the real estate-linked perimeter through the revised “property-rich” threshold. As a result, securities-based exits remain broadly stable, while property-driven exits require more careful modelling.
• Non-Dom regime remains a cornerstone of Cyprus’ personal tax offering: The Cyprus non-dom regime remains one of the jurisdiction’s most important features for internationally mobile individuals. Eligible non-dom taxpayers continue to benefit from exemption from SDC on dividends and interest, preserving long-term predictability for personal investment and wealth structuring. While the reform introduces a structured long-stay alternative after extended residence, the core non-dom framework and its planning logic remain intact.
• 60-day and 183-day tax residency rules remain unchanged: Cyprus’ individual tax residency framework, including both the 183-day rule and the widely used 60-day rule, remains unchanged. This continuity preserves one of Cyprus’ most distinctive advantages: a residency test that is both practical and well understood by international advisers, supporting relocation, cross-border planning and substance-driven structuring.
• Participation exemption and holding company fundamentals remain intact: The participation exemption regime and the broader Cyprus holding company fundamentals remain unchanged. This ensures continued exemption from taxation on qualifying dividend income and capital gains, subject to the existing conditions, and preserves Cyprus’ long-standing role as a regional and international holding platform for inbound investment, group reorganisations and cross-border ownership structures.
• 50% employment income exemption for qualifying new residents remains unchanged: The established 50% employment income exemption for qualifying new residents remains fully in force. This preserves a key incentive for senior executives, entrepreneurs and highly skilled professionals relocating to Cyprus, and continues to support Cyprus’ attractiveness as a jurisdiction for international talent and substance-based operations.

Each of these elements provides continuity and stability within a reformed framework.

How to Prepare for 2026 (Practical Planning Points)

From a planning perspective, 2026 creates a clear dividing line. Individuals and businesses should map income and profit streams by reference to whether they arise before or after 1 January 2026, revisit dividend policy and shareholder extraction strategies under the revised SDC framework, reassess property-rich holding structures under the tightened CGT perimeter, and ensure that compliance systems—filings, payment trails and record readiness—are aligned with the reform’s enhanced enforcement environment.

Conclusion

The Cyprus Tax Reform 2026 represents a decisive modernisation of the tax system. While corporate income tax increases to 15%, Cyprus remains among the more competitive jurisdictions in the European Union, supported by a coherent and internationally aligned framework. At the same time, dividend taxation is rationalised for post-2026 profits, household relief becomes more targeted, and compliance expectations are significantly strengthened.

For individuals and businesses alike, the reform is not merely something to absorb but something to plan around. Separating pre- and post-2026 profit pools, revisiting dividend and holding structures, reassessing real estate exposure, and strengthening compliance processes will be essential to navigating the new environment effectively.

If you would like to discuss how the Cyprus Tax Reform 2026 may affect your personal or corporate tax position, or to assess restructuring and planning options under the new framework, our Tax and Corporate team would be pleased to assist. Please contact us to arrange a consultation.