Overview of changes implemented by the Cyprus tax reform

On December 22, 2025, the Cyprus parliament approved a long-awaited comprehensive tax reform. Its goal is to make the tax system more flexible, fair, and effective, adapt it to modern economic and social realities, and improve compliance with tax legislation. 

The relevant legislative acts were published in the Government Gazette on December 31, 2025. The changes came into force on January 1, 2026.

The tax reform amended the following six laws:

1. The Income Tax Law of 2002 (118(I)/2002), the “ITL”;
2. The Special Contribution for the Defence Law of 2002 (117(I)/2002), the “SDCL”;
3. The Capital Gains Tax Law of 1980 (52/1980), the “CGTL”;
4. The Assessment and Collection of Taxes Law of 1978 (4/1978), the “ACTL”;
5. The Collection of Taxes Law of 1962, the “CTL”;
6. The Stamp Duty Law of 1963, the “SDL”.

Below we will take a closer look at the main changes that will be truly important for your business in Cyprus.

Starting a company in Cyprus after the 2026 tax reform?

Cyprus remains a strong jurisdiction for international business, but the setup should now be planned with the new tax rules in mind. We help with company incorporation, local corporate services, tax number registration and practical launch support.
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Corporate Tax, Tax Residency and IP Box Changes

1. The corporate tax rate increased from 12.5% to 15%.
2. Expansion of the concept of tax residency. From January 1, 2026, any company registered under the Cyprus Companies Law will automatically be considered a tax resident of Cyprus, regardless of where its management and control are actually located. The law also contains an additional clarification, according to which companies that have transferred their registered office/legal address to Cyprus are officially equated with companies incorporated in Cyprus and also automatically become tax residents of Cyprus.
   For the corporate side of ongoing compliance, including local directors and registered office requirements, continue with post-registration company maintenance in Cyprus – Part 2.
3. The IP Box regime rate increases from 2.5% to 3%.
4. Changes have also been made to the calculation of depreciation allowances for intangible assets. If a company issues new shares (i.e., increases its authorized capital) in favor of the seller in order to obtain an intangible asset, then for tax depreciation purposes, the value of this asset cannot exceed its fair market value at the time of acquisition.

In other words, tax deductions (amortization) will be calculated based on this actual market price, rather than the nominal value of the shares issued (which may be significantly higher or lower).

Loss Carry-Forward, R&D, Crypto and Other Key Income Tax Updates 

Below are the additional income tax changes introduced by the Cyprus tax reform that may affect corporate structuring, tax planning and ongoing compliance.

1. The period during which companies in Cyprus can carry forward their tax losses and deduct them from future taxable profits has been increased from 5 to 7 years. 
2. R&D Expenses. From the 2025-2030 tax periods (inclusive), companies in Cyprus can receive an additional 20% deduction on eligible R&D expenses.

This means that research and development expenses (including those that are capitalized and amortized) are deducted from taxable profits not at 100%, but at 120% (100% + an additional 20%). The company chooses whether to apply the additional 20% in full, in part, or not at all.

However, there are restrictions. It does not apply to the cost of acquiring fixed assets (machinery, equipment, buildings, etc.) for which normal capital allowances are already provided.

It does not apply to assets that benefit from the IP Box regime.

This benefit is temporary support for innovative companies, allowing them to significantly reduce their income tax through real investments in development.

For the broader business case beyond tax reform alone, see why IT businesses choose Cyprus for company formation and scaling.

3. Income from certain transactions with crypto-assets (as defined in EU Regulation MiCA 2023/1114) is taxed at a fixed rate of 8%:

• sale of a crypto asset;
• gift of a crypto asset;
• exchange of one crypto asset for another;
• using crypto assets as a payment method (to buy goods/services).

This special tax regime does not apply to income from crypto assets that were acquired through mining.

Regarding losses arising on crypto assets, the ITL indicates that they can only be offset against gains from other crypto assets of the same person of the same year. Such losses cannot be carried forward or offset through group relief.

4. New thresholds for transactions with related parties (affiliated companies, shareholders, etc.):

• Sale of Goods Transactions – if the amount of transactions for the year exceeds (or would exceed on an arm’s length basis) EUR 5 million.
• Financial transactions (loans, credits, guarantees, deposits, etc.) – if the amount of transactions for the year exceeds (or would exceed according to the “arm’s length” principle) EUR 10 million.
• All other transactions (services, royalties, leases, sales of assets, etc.) – if the amount of transactions for the year exceeds (or would exceed according to the the “arm’s length” principle) EUR 2.5 million.

5. The General Anti-Avoidance Rule (GAAR) in the ITL has been significantly expanded. It now clearly applies to any transactions or schemes whose main purpose is to avoid or reduce income tax, regardless of whether this tax arises in a company or an individual. The tax authorities have the right to ignore or reclassify artificial or inappropriate structures if they are created primarily for tax optimization without any real commercial purpose.
6. Interest accrued or received by the company is regulated by ITL and are fully exempt from SDCL.

This means that companies include interest in their taxable income at the corporate tax rate (CIT 15% from 2026), but without the additional SDC (which previously could be applied to “passive” interest).

Not sure whether Cyprus is still the right fit after the 2026 reform?

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Dividend, Interest and Rental Income Changes under the SDC Rules

1. The rate of the Special Contribution for Defence (SDC) on dividends received by individuals who are tax residents and domiciled in Cyprus is reduced from 17% to 5%. Dividends received from Cypriot tax resident companies from profits earned before December 31, 2025, continue to be taxed at a rate of 17% SDC if such dividends are paid before December 31, 2031, inclusive.
2. The Deemed Dividend Distribution (DDD) rules are cancelled for income received from January 1, 2026, by companies that are tax residents of Cyprus.
3. Dividends that a Cyprus tax resident company receives from another Cyprus tax resident company are generally fully exempt from any taxation (neither CIT nor SDC). However, there are exceptions where such dividends are still subject to SDC at a rate of 17%. These exceptions are temporary and only apply until December 31, 2031.
4. The SDC rules on dividends paid by Cypriot companies to related parties in black or gray list jurisdictions have been updated:

• Black List Jurisdictions – the SDC rate remains 17% on gross dividends (the full amount of dividends before deductions) – no change.
• Low-Tax Jurisdictions – the SDC rate is reduced from 17% to 5% on gross dividends.

5. Foreign dividends received by a Cypriot company are usually exempt from all taxes (0%). However, if two conditions are met simultaneously:

• more than 50% of the activities of the paying company – are passive investments (dividends, interest, etc.),
• tax in the payer’s country is less than half of the Cypriot tax (i.e., less than ~7.5%), then the exemption does not apply and such dividends are subject to 5% SDC instead of the previous 17%.

6. The concept of disguised dividends has been introduced for individuals who are direct or indirect shareholders of Cypriot companies.

If a shareholder (or their relative) uses the company’s property for personal purposes or receives it at an undervalued price, this is considered a disguised dividend and is taxed at 10% (double the normal SDC rate of 5%).

7. Interest income received by Cypriot tax resident companies is no longer subject to SDC. It is only subject to corporate income tax in all normal cases.
8. Rental income is no longer subject to SDC. Previously, it was subject to Both IT/CIT and SDC at the same time. Now, it is only subject to IT or CIT, without additional SDC. 

Capital Gains Tax Changes for Real Estate and Share Disposals 

1. The CGTL introduces the definition of “real estate”, which is derived from the definition given in the Real Estate Act (ownership, registration and valuation).
2. The definition of the term “property,” which includes shares in companies that directly or indirectly own shares in companies that own immovable property located in Cyprus, has been amended to reduce the threshold for the value of immovable property in relation to the market value of those shares from (at least) 50% to (at least) 20%.
3. When a company’s shares are sold and their market value is mainly represented/determined by the market value of the real estate owned by that company, for the purposes of calculating CGT, the disposal value will be considered to be the value declared by the parties to the contract, adjusted to take into account the fair market value of any other assets owned by the company disposing of the property.

Note: The authorities will have to officially clarify the detailed mechanism for calculating the relevant percentage.

4. Application of CGT to shares of companies regulated/unregulated markets that directly or indirectly (taking into account the relevant thresholds) own real estate in Cyprus:

• No tax is levied on capital gains from the sale of shares listed on a regulated market (CGTL refers to the Investment Services and Activities and Regulated Markets Law to define the concept of “regulated market”).
• No tax is levied on capital gains from the sale of shares listed on an unregulated market of a recognized stock exchange, provided that the total value of all such disposals during the calendar year does not exceed €50,000.
• If the total value of disposals exceeds €50,000 during a calendar year, tax at the standard rates applies to amounts exceeding this threshold at the time the threshold is exceeded.
• Gains from the sale of shares owned as of December 31, 2025, which were listed on an unregulated market of a recognized stock exchange and belonged to the transferor at the relevant time, are exempt from taxation regardless of the value of the disposal.

New TD4 Filing Deadline and Mandatory Audit Requirements 

1. The deadline for filing income tax returns (TD4) has been changed to 13 months after the end of the year instead of 15 months. Tax payments must also be made before this deadline.
2. A requirement for mandatory auditing of financial statements has been implemented for all companies except the smallest ones.

For a practical checklist on tax filings, VAT, financial statements and audit, read post-registration company maintenance in Cyprus – Part 1.

Stamp Duty Abolished from 1 January 2026

Complete abolition from January 1, 2026.

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