Cyprus Tax Reform 2026: What the New 15% Corporate Tax Means for Your Business
On 1 January 2026, Cyprus brought into force its most significant tax reform in decades. The package, approved by the House of Representatives in December 2025, reshapes corporate taxation, dividend treatment and tax administration, while preserving the incentives that have long made Cyprus a leading EU business hub.
The Headline Change: Corporate Tax Rises to 15%
The corporate income tax rate has increased from 12.5% to 15%, applying to all Cyprus tax-resident companies for profits earned from 2026 onwards. The change aligns Cyprus with the OECD global minimum tax framework (Pillar Two) and strengthens the island’s standing as a compliant, reputable jurisdiction, reducing the risk of Cyprus structures being caught by foreign Controlled Foreign Company (CFC) rules.
Importantly, the participation exemption remains intact. Dividend income received by Cyprus companies generally remains exempt, meaning pure holding structures are largely unaffected by the rate increase.
What Businesses Gain in Return
The reform is far from a one-way increase. Several offsetting measures materially reduce the overall tax burden:
- Special Defence Contribution (SDC) on dividends cut from 17% to 5% for Cyprus-domiciled individuals, in respect of profits earned from 2026 onwards.
- Deemed Dividend Distribution (DDD) rules abolished for 2026 profits, removing forced taxation of undistributed profits.
- Tax loss carry-forward extended from five to seven years.
- Stamp duty fully abolished from 1 January 2026.
- SDC on rental income abolished, leaving rents subject only to income tax.
- A flat 8% rate on gains from crypto-asset disposals, giving digital asset investors long-awaited clarity.
A New Residency Test for Companies
Companies incorporated in Cyprus are now automatically deemed Cyprus tax residents under the new “incorporation test”, unless an applicable double tax treaty provides otherwise. Businesses should review their structures to confirm where tax residency now sits.
Stronger Enforcement & Compliance Obligations
The reform also modernises tax administration. The statute of limitations is now six years from the submission of a return, administrative fines have increased, and the Tax Commissioner has been granted new collection powers. Directors remain personally exposed for actions taken during their term of office, making robust governance more important than ever.
How Enalian Can Help
Whether you operate a trading company, a holding structure or an investment vehicle, the 2026 reform warrants a fresh look at your setup. Our tax team can assess the impact on your effective tax rate, review dividend and distribution policies, and ensure your compliance framework meets the new standards. Contact us to arrange a consultation.
