On 1 January 2026, Cyprus will implement its most extensive tax reform in more than two decades. This transformative legislative package reshapes corporate taxation, personal income tax, dividend rules, compliance obligations, and introduces new regimes impacting crypto-assets and stock options. Approved by the House of Representatives on 22 December 2025, the reform aims to modernize Cyprus’ tax framework, strengthen competitiveness, and align fully with global standards such as the OECD Pillar Two requirements.
This comprehensive guide outlines every key change to help businesses, investors, tax professionals, and individuals prepare effectively.
1.Corporate Income Tax Reform
The corporate tax rate will rise from 12.5% to 15% for tax years beginning on or after 1 January 2026.
This positions Cyprus within the OECD’s global minimum tax framework while preserving its role as a competitively low-tax jurisdiction in the EU.
Additional Corporate Measures
- Loss carry-forward period extended from 5 to 7 years.
- Entertainment expense allowance increased to €30,000.
- 120% R&D super-deduction extended until 2030.
What Remains Unchanged?
Cyprus preserves its most attractive corporate tax pillars:
- 0% tax on qualifying dividends (participation exemption).
- 0% capital gains tax on disposals of securities (shares, bonds, debentures, options).
- 80% IP Box exemption on qualifying IP income.
- Notional Interest Deduction (NID) continues.
- 0% withholding tax on dividends and interest paid abroad.
- Foreign branch profits remain exempt.
2. Dividend Taxation & Special Defence Contribution (SDC)
Abolition of Deemed Dividend Distribution (DDD)
From 2026, profits will no longer trigger automatic shareholder taxation after two years. Tax will apply only upon actual distribution.
New SDC Rate on Dividends
For Cyprus tax resident and domiciled individuals:
- SDC rate reduced from 17% to 5% on dividends paid from post-2026 profits. Non-domiciled individuals remain fully exempt from SDC on dividends (0%).
Rental Income SDC Abolished
The 3% SDC on rental income is abolished entirely.
Simplified SDC Payment
Foreign dividends and interest now moved from a two-instalment system to one payment upon filing the income tax return.
3. Personal Income Tax Reform
The reform introduces new tax bands, a higher tax-free threshold, and expanded deductions.
New Personal Income Tax Bands
| Taxable Income (€) | Rate |
| 0 – 22,000 | 0% |
| 22,001 – 32,000 | 20% |
| 32,001 – 42,000 | 25% |
| 42,001 – 72,000 | 30% |
| Above 72,000 | 35% |
The 35% rate previously applied from €60,000; now raised to €72,000.
New Deductions
Family deductions (per parent):
- 1 child: €1,000
- 2 children: €1,250 per child
- 3+ children: €1,500 per child
Income caps for deduction eligibility:
- 1–2 children: Up to €100,000
- 3–4 children: Up to €150,000
- 5+ children: Up to €200,000
Housing-related deductions:
- Mortgage interest / Rent: up to €2,000
- Energy upgrades: up to €1,000
Retirement & Severance Changes
- Voluntary retirement exemption increased from €20,000 to €200,000.
- Excess taxed at flat 20%.
It is important to note that any additional deductions or benefits related to these provisions will apply only to income earned from 2026 onwards.
Foreign Pensions and Audit Threshold
Under the 2026 reform, individuals receiving foreign pensions may choose to have their income taxed under the normal progressive rates or at a preferential flat rate of 5% on amounts exceeding €5,000, allowing for flexible tax planning. Additionally, the threshold for mandatory audited accounts for individuals has been increased from €70,000 to €120,000, reducing administrative burdens for many taxpayers.
4.Non-Domiciled Regime: Core Benefits Preserved
Cyprus continues to uphold its globally recognized non-domicile framework, ensuring that its core benefits remain intact. Individuals qualifying as non-domiciled enjoy a 0% Special Defence Contribution (SDC) on both dividends and interest, providing significant tax efficiency. The regime maintains a 17-year eligibility period, and the 60-day residency rule continues to apply, allowing non-doms to structure their residency and income efficiently while taking full advantage of Cyprus’ favorable tax environment.
The 50% Income Tax Exemption
Under the non-domiciled regime, qualifying individuals benefit from a 50% income tax exemption on their first employment income exceeding €55,000. This exemption can be applied for up to 17 years, offering substantial tax savings for high-earning professionals and reinforcing Cyprus as an attractive long-term base for skilled talent and executives.
New Long-Term Extension Option
Non-domiciled individuals now have the option to extend their benefits beyond the standard 17-year period. They may apply for two additional five-year extensions, each available for a lump sum payment of €250,000. Applications must be submitted by 30 June of the first year of eligibility for the extension, allowing long-term planning for continued tax advantages in Cyprus.
5.New 8% Tax on Crypto-Assets & Stock Options
Crypto-Asset Taxation
A new flat tax of 8% will apply to gains realized from crypto-asset disposals, affecting both individuals and companies. Under this regime, losses cannot be carried forward and may only be offset against crypto gains realized within the same tax year, ensuring a straightforward but comprehensive approach to taxing digital assets.
Stock Option Regime – A preferential 8% rate applies to qualified employer plans.
Caps:
- Gains capped at 2x annual salary.
- Lifetime cap: €1 million over 10 years. Excess taxed at normal salary tax rates.
- Excess: Proceeds exceeding caps taxed at normal salary rates (up to 35%).
6.Capital Gains Tax & Stamp Duty Reforms
While the securities exemption remains fully intact (0% CGT), new lifetime exemptions thresholds apply from 2026:
| Disposal Type | Pre-2026 | From 2026 |
| General Exemption | €17,086 | €30,000 |
| Agricultural Land | €25,629 | €50,000 |
| Primary Residence | €85,430 | €150,000 |
The definition of immovable property has been tightened: disposal of shares in companies deriving 20%+ of value from Cyprus immovable property is now subject to CGT (previously 50%).
Stamp Duty Abolition
Stamp duty will be abolished for most transactions under the 2026 reform, simplifying the tax landscape for businesses and individuals. Exceptions to this abolition include:
- Real estate contracts
- Banking agreements
- Insurance contracts
Transactions such as loan agreements, share purchase agreements, and commercial contracts are fully exempt, reflecting a more streamlined and modern approach to Cyprus’ transaction taxation.
7.Compliance, Enforcement & New Filing Obligations
Mandatory Tax Filing
All Cyprus tax residents aged 25 to 71 must file annual returns regardless of income.
New Deadlines
- Corporate tax return (submission + payment): 31 January (Y+2)
- Corporate self-assessment: 31 July (Y+2)
- TIN Registration (transitional): By 31 December 2027
- Electronic rent payments: Mandatory from 1 July 2026 for rents above €500/month. Detailed implementation guidelines and practical implications are still to be announced.
Expanded Powers of the Tax Commissioner
The 2026 reform significantly strengthens the powers of the Tax Commissioner to ensure compliance and effective enforcement.
- Request asset & liability statements (6-year scope)
- Obtain banking data
- Suspend business operations (sealing)
- Freeze company shares for tax debts > €100,000
- Collect overdue taxes from third parties
- Impose higher administrative fines
Despite the expanded powers of the Tax Commissioner, taxpayers retain full rights to challenge any assessments or enforcement actions in court, ensuring that the strengthened compliance framework operates within a fair and transparent legal process.
8.Implementation Timeline, Key dates to remember
| Date | Note |
| As of 1 January 2026 | Main reform becomes effective |
| As of 1 July 2026 | Electronic rent payments will be implemented |
| Until 31 December 2027 | TIN registration deadline |
| Until 2030 | R&D super-deduction expiry |
| Until 1 January 2031 | CIS redemption gains treated as dividends for SDC |
- What steps should you or your business take?
The Cyprus Tax Reform 2026 introduces both opportunities and new compliance requirements. Early preparation is essential to ensure optimal tax outcomes and avoid unnecessary risks.
- Segment pre- and post-2026 profits for correct SDC/DDD application.
- Revise dividend strategies—the 5% SDC enhances extraction efficiency.
- Reassess tax planning especially for holding, IP, and financing structures.
- Prepare systems for broader reporting and longer document retention.
- Leverage 8% stock option regime for employee compensation.
The 2026 Cyprus Tax Reform introduces important changes that directly affect personal taxation. To navigate the new rules effectively and take full advantage of available benefits, individuals should be proactive in understanding their obligations, optimizing deductions, and planning for long-term tax efficiency. The following steps outline the most critical actions for residents and non-domiciled individuals alike.
- Mandatory tax return filing for all residents 25+.
- Proper documentation for family, housing, and energy deductions.
- Evaluate annual options for foreign pension taxation.
- Understand CGT changes, exemptions, and electronic rent rules.
- Non-doms nearing 17 years should plan for extension.
For more information, feel free to contact us at: Tel.: +357 22 252 774 or Via Viber, WhatsApp, Telegram +357 99 988 31 to book your free consultation.
E-mail: info@altuscitadel.com or marketing@altuscitadel.com
