The Cyprus Tax Reform 2026

As of 1 January 2026, the new tax reform of the Republic of Cyprus has come into force, following its approval by the House of Representatives after lengthy and extensive consultations.

The reform introduces significant changes to the existing tax framework and applies to both individuals and Cypriot and foreign companies that operate or have a tax presence in Cyprus.

The objective of these changes is to modernize the tax system, enhance transparency and tax fairness, and maintain Cyprus’s competitiveness as an international business centre.

Below, we outline some of the key changes.

Changes to Income Tax Rates for Individuals

For individuals, the tax bands have been revised and expanded, with a horizontal increase in the tax-free threshold from €19,500 to €22,000.

Revised tax bands and rates effective from 01/01/2026

Tax bands and rates up to 31/12/2025:

It is noted that total family income is recognized, and tax exemptions, allowances, deductions, and other reliefs are granted to each spouse or partner, depending on the total number of children.

Changes Affecting All Companies Operating in Cyprus or Tax-Resident in Cyprus (Cypriot and Foreign Companies)

1. Increase of the corporate income tax rate from 12.5% to 15%.
2. Introduction of a special tax regime for profits arising from the disposal of crypto-assets at a flat rate of 8%.
3. Extension of the loss carry-forward period from 5 to 7 years.
4. Extension until 2030 of the 120% super-deduction for research and development expenditure related to intangible assets.
5. Introduction of a special taxation method with a flat rate of 8% on stock options, under an approved employer incentive scheme.
6. Increase of the maximum allowable entertainment expenses deductible for tax purposes from €17,086 to €30,000.
7. Clarification that ex gratia payments made by an employer as a lump sum (upon commencement or termination of employment) are subject to income tax at a flat rate of 20%, after granting a tax-free amount of €200,000 in cases where such payments are made due to termination of employment.

Special Defence Contribution (SDC) – Key Changes for Cypriot Companies from 1 January 2026

• Abolition of deemed dividend distribution on profits generated after 1/1/2026.
• Reduction of the SDC rate on actual dividend distributions from 17% to 5% for profits generated after 1/1/2026.
• Abolition of SDC on rental income.

Amendments to the Assessment and Collection of Taxes Law

The new legislation includes measures aimed at combating tax evasion. Key provisions include:

• Mandatory submission of a tax return by all individuals aged 25 to 70 years.
• Increase of the threshold for mandatory submission of audited financial statements based on gross income from €70,000 to €120,000.
• From 1 July 2026, rent payments must be made via bank transfer or electronic payment; cash payments are prohibited.
• Based on the tax reform of 2026, the deadline for submission of corporate tax returns is moved from 31^st March of the second year following the relevant tax year, and the new deadline is the 31^st January of the second year following the relevant tax year, which will also apply to the payment of corporate tax.
• Introduction of mandatory tax return submission by partnerships.
• Extension of the deadline for submitting an objection to the Commissioner of Taxation to 60 days.
• Authority granted to the Commissioner of Taxation to request statements of assets and liabilities covering a period of up to six (6) years, and to require retention of supporting tax records for six (6) years.
• Authority granted to the Commissioner of Taxation to request tax-related banking information from banks in Cyprus (such as deposits).
• Temporary suspension of operations of the company for up to ten (10) days for failure to submit tax returns, failure to issue legal receipts, or outstanding tax liabilities. Taxpayers retain the right to challenge such decisions in court.
• Freezing of company shares for tax liabilities exceeding €100,000.

Capital Gains Tax Law – Amendments and Differentiations

1. The exemption applicable to property exchanges is also extended to cover property, for that is, from consideration.
2. Adjustment of lifetime capital gains tax exemptions:
   • General exemption increased from €17,086 to €30,000.
   • Agricultural land exemption increased from €25,629 to €50,000.
   • Primary residence exemption increased from €85,430 to €150,000.
3. Amendment of the definition of immovable property to reduce the taxable threshold and include disposals of company shares where 20% (instead of 50%) of their market value is indirectly derived from immovable property in the Republic, in order to address tax avoidance practices.
4. In case of sale of shares of a company whose value substantially represents the market value of immovable property, the consideration shall be declared as sale proceeds of the shares adjusted by the market value of other assets and liabilities.
5. Introduction of a provision allowing the Commissioner of Taxation to refuse consent for the transfer of immovable property where the seller or buyer is not fully compliant with their tax obligations (foreclosures excluded).

Abolition of the Stamp Duty Law

As of 1 January 2026, payment of stamp duty on original documents is no longer mandatory, except for documents requiring an apostille stamp.