For decades, the Cyprus’ tax system has been one of the cornerstones of the country’s position as a leading international business centre. Its simplicity, predictability, and competitiveness played a crucial role in attracting investment, talent, and entrepreneurial activity from around the world.
Against this backdrop, the long-awaited comprehensive tax reform marks a significant milestone. The reform seeks to reshape the existing framework so that it responds with greater flexibility, fairness, and efficiency to modern economic and social demands, while also strengthening tax compliance. In doing so, it reflects Cyprus’ commitment to aligning its tax regime with evolving international standards without compromising its competitive edge.
The proposed changes aim to enhance fairness across the tax system, further attract skilled professionals through extended non-domiciled benefits, provide much-needed clarity in relation to digital assets, and ensure the long-term sustainability of Cyprus as an attractive and credible business jurisdiction.
Key Elements of the Cyprus Tax Reform
- Broadened definition of Cyprus tax resident companies
The concept of a Cyprus tax resident company has been expanded to cover companies incorporated under the Cyprus Companies Law, irrespective of whether they are also regarded as tax resident in another jurisdiction. This does not apply where tax residency in another country is established under a relevant double tax treaty.
- Amendment of corporate tax rate
The statutory corporate tax rate is increased from 12,5% to 15%, bringing Cyprus closer to the OECD guidelines on minimum tax.
- Extended tax loss carry-forward period
The allowable period for the carry-forward of tax losses has been increased from five to seven years, offering enhanced flexibility and improved long-term tax planning for businesses.
- Elimination of deemed dividend distribution provisions
The deemed dividend distribution rules will be disapplied for profits generated by Cyprus tax resident companies from 1 January 2026 onwards, resulting in a simplified and more business-friendly tax framework.
- Special taxation framework for crypto assets
A measured and consistent approach has been introduced for the taxation of crypto assets. Under the new regime, capital gains that were previously outside the scope of taxation, will be taxed at a uniform rate of 8%, while losses arising on crypto assets, can only be offset against gains from other crypto assets of the same person in the same year.
- Adjustment of individual income tax bands
Personal income tax brackets have been revised upwards to reflect prevailing economic conditions and the changing financial needs of individuals, effectively increasing the tax-free threshold.
- Lower special defence contribution on dividends
The special defence contribution rate applicable to gross dividend income has been reduced substantially from 17% to 5%.
- Removal of special defence contribution on rental income
Rental income will no longer attract special defence contribution, in addition to income tax or corporate income tax. Under the revised rules, such income will be subject only to income tax or corporate income tax, as applicable.
- Extended availability of the non-domiciled SDC exemption
Previously, the special defence contribution exemption for qualifying non-domiciled individuals ceased once the individual had been tax resident in Cyprus for at least 17 of the preceding 20 tax years. Under the revised framework, individuals whose non-domiciled status is based on having a domicile of origin outside Cyprus may extend the exemption for up to two additional five-year periods, subject to an upfront fee of €250,000 for each five-year extension.
Stamp duty has been abolished with effect from 1 January 2026, further reducing transactional costs and administrative requirements.
In summary, the proposed tax reform represents a decisive step towards modernising Cyprus’ tax framework in line with contemporary economic realities and international developments.
At the same time, the measures preserve and reinforce Cyprus’ attractiveness as an international business and investment hub. The combination of extended incentives, targeted reliefs for companies and individuals, and clarity in emerging areas such as digital assets underscores the country’s commitment to remaining competitive, forward-looking, and responsive to the needs of businesses and individuals alike. As the reforms are implemented, they are expected to play a central role in supporting sustainable growth and reinforcing confidence in Cyprus’ tax system.
Please contact our
tax law team if you require more information.
