On 31 December 2025, Cyprus published in the Official Gazette a comprehensive package of tax reform legislation approved by the House of Representatives earlier that month. The reforms apply primarily from 1 January 2026 and represent the most substantial revision of the Cyprus tax system in approximately two decades.
The changes are wide-ranging and affect corporate taxation, shareholder taxation, capital gains tax, personal taxation, residency concepts, and tax administration. For businesses and internationally mobile individuals using Cyprus as part of their structuring, the reform reflects a deliberate move towards a more modern and internationally aligned framework, while preserving many of the jurisdiction’s core advantages.
This article provides a high-level overview of the key changes and explains why a review of existing structures is now essential.
Corporate taxation and business framework
The corporate income tax rate increases from 12.5% to 15%. While this is a headline change, Cyprus remains competitive within the EU, particularly when viewed alongside its participation exemption regime, extensive double tax treaty network, absence of general withholding tax on outbound dividends, and continued access to EU directives.
The concept of corporate tax residence is expanded through the introduction of an incorporation-based test, alongside the existing management and control test. Companies incorporated in Cyprus will generally be treated as Cyprus tax resident unless residence is allocated elsewhere under applicable double tax treaty tie-breaker rules. This change brings Cyprus closer to international norms and places greater emphasis on treaty analysis, substance, and governance for Cyprus-incorporated structures managed abroad.
The loss carry-forward period is extended from five to seven years, improving flexibility for groups with longer investment, development, or restructuring cycles.
Transfer pricing compliance is recalibrated through increased local file thresholds, reducing compliance burdens for smaller groups while maintaining the requirement for robust support and documentation for material related-party transactions.
R&D incentives are reinforced. The 120% R&D super-deduction is extended until 2030, and the interaction with the IP nexus regime is clarified, reducing uncertainty and preventing double benefits.
A dedicated crypto-assets tax regime is introduced. Gains arising from the disposal, exchange, gifting, or use of crypto-assets as a means of payment are subject to income tax at a flat rate of 8%. Losses are ring-fenced and may only be offset against crypto gains of the same year, with no carry-forward. Crypto acquired through mining is excluded from this special regime and remains subject to the general tax framework.
A special flat 8% tax regime is also introduced for qualifying share-based benefits granted to employees and directors under approved arrangements, subject to conditions, vesting requirements, and monetary caps. Amounts exceeding the caps are taxed under the normal progressive income tax rules.
Individual taxation and residency
Personal income tax bands are revised, with the tax-free threshold increasing to €22,000 and adjusted progressive rates thereafter, up to 35% for income exceeding €72,000.
New family-related deductions are introduced, linked to income thresholds and family composition. These include deductions for dependent children, housing-related costs, and energy or green transition expenditure. The availability of these deductions is more fact-dependent than before and requires careful modelling, particularly for relocating families.
The 60-day tax residency rule remains in place and unchanged in principle. Individuals may still qualify as Cyprus tax resident if they spend at least 60 days in Cyprus, maintain a permanent residence, have business, employment, or an office in Cyprus, and do not spend more than 183 days in any other single country. Physical presence abroad therefore remains decisive, and residency planning continues to require strict monitoring of travel patterns and supporting documentation.
Special Defence Contribution and shareholder taxation
One of the most significant reforms for Cyprus-based holding and operating structures is the abolition of the deemed dividend distribution regime for profits generated from 1 January 2026 onwards. Transitional rules continue to apply to profits of earlier years, making it important to distinguish between legacy retained earnings and post-2025 profits when planning distributions.
The Special Defence Contribution rate on actual dividends paid to Cyprus tax resident and domiciled individuals is reduced from 17% to 5%, materially lowering shareholder-level tax friction.
At the same time, the legislation introduces expanded concepts aimed at countering non-arm’s-length value extraction, including constructive or concealed dividends. Where value is extracted outside commercial parameters, a higher effective tax burden may apply, increasing the importance of proper documentation, pricing, and substance.
SDC on rental income and on passive interest earned by companies is abolished, with such income taxed only under income tax rules. The payment mechanics for SDC on foreign dividends and interest are also simplified, moving away from instalment payments towards settlement upon submission of the income tax return.
For individuals who become deemed domiciled after long-term residence in Cyprus, an alternative lump-sum taxation option is introduced, allowing continued access to certain non-dom benefits for limited periods in exchange for significant upfront payments.
Capital gains tax
The scope of capital gains tax is expanded through a reduction in the “property-rich” company threshold from 50% to 20%, bringing a broader range of indirect disposals of Cyprus immovable property within the CGT net. This is particularly relevant where property is held through multi-layered structures.
The treatment of listed shares is refined. CGT exemption is limited to shares listed on regulated markets of recognised stock exchanges, while disposals on non-regulated markets may be subject to CGT above an annual exemption threshold.
Lifetime CGT exemptions for individuals are increased, including the exemption for a primary residence, which rises to €150,000. This exemption remains available once per individual over their lifetime and is subject to qualifying conditions, including actual use of the property as a main residence.
Stamp duty and administration
The Stamp Duty Law is repealed in its entirety with effect from 1 January 2026, removing a long-standing friction point in transactional documentation. Transitional practical issues may still arise for documents executed before year-end where stamp duty liability had not crystallised.
Tax administration and enforcement rules are significantly strengthened. Filing and payment deadlines are revised, mandatory tax return filing is expanded, thresholds for audited financial statements are increased, and rent payments relating to Cyprus immovable property must be made through traceable means. The Tax Commissioner is granted enhanced enforcement powers, including the ability to suspend business operations in cases of serious non-compliance, as well as expanded powers relating to director liability, security for unpaid taxes, and access to information.
Why this matters now
Cyprus has deliberately repositioned its tax framework to remain competitive, credible, and aligned with international standards, without abandoning the features that have historically made it attractive for international structuring. While many of the changes are favourable, their interaction with existing structures, shareholder profiles, treaty positions, and future plans is not always straightforward. In some cases, structures that were efficient under the previous regime may benefit from adjustment. In others, new risks may arise if arrangements are left unchanged, particularly where profits straddle the pre- and post-2026 periods, where residence is treaty-sensitive, where distributions are planned, or where immovable property exposure exists.
How Savva & Associates can assist
Savva & Associates advises international clients, family offices, entrepreneurs, and professional advisers on Cyprus tax structuring, residency planning, and cross-border arrangements. We focus on practical, defensible solutions that align tax efficiency with substance, compliance, and long-term planning objectives.
As Cyprus transitions into its new tax framework, we are supporting clients in reviewing existing structures, reassessing distribution strategies, and identifying opportunities arising from the reform. Reviews are undertaken on a time-spent basis and are tailored to each client’s circumstances, taking into account both legacy positions and forward-looking considerations.
Further insights on Cyprus taxation, residency planning, and international structuring are available at www.savvacyprus.com.
Please get in touch with our team at:
| Charles Savva Managing Director BA, MBA, TEP, CA [email protected] +357 22516671 | Mina Pieri Senior Manager FCCA, MBA [email protected] +357 22510207 | Makis Pavlou Account Manager FCCA [email protected] +357 22510257 |