The House of Representatives of Cyprus has approved the first comprehensive reform of the Cyprus tax system since 2002, introducing far-reaching changes to corporate taxation, personal income tax, and enforcement powers.

The reform reflects Cyprus’s response to international tax developments, while seeking to preserve its position as a competitive and credible jurisdiction for businesses, investors, and high-net-worth individuals.

The measures will enter into force following official publication in the Official Gazette, with several key provisions applying from 1 January 2026.

Corporate Taxation: A Shift in Emphasis

The headline corporate income tax rate will increase from 12.5 percent to 15 percent. While this aligns Cyprus with evolving international standards, it is only one element of a broader recalibration.

At the same time, the taxation of profit distributions is significantly eased. The Special Defence Contribution on dividends will be reduced from 17 percent to 5 percent for profits earned after 1 January 2026, while the deemed dividend distribution rules are abolished for future profits.

These changes materially improve the tax efficiency of distributions and simplify long term planning for owner-managed businesses, holding companies, and international groups.

Additional corporate measures include the abolition of stamp duty, the removal of Special Defence Contribution on rental income, and the extension of the tax loss carry forward period from five to seven years. The 120 percent super deduction for research and development expenditure on intangible assets is extended until 2030, while the deductible cap for entertainment expenses increases to €30,000. The tax-free threshold on capital gains is also increased to €30,000.

Anti-Tax Evasion and Enforcement Measures

Alongside incentives, the reform introduces a strengthened enforcement framework.

From 1 July 2026, rental payments exceeding €500 must be made exclusively through bank transfer or electronic payment. The Tax Commissioner will have the authority to request statements of assets and liabilities covering a six year period, with mandatory retention of supporting documentation.

Most notably, the Tax Commissioner is granted enhanced enforcement powers, including the ability to seal non-compliant businesses and freeze company shares where tax liabilities exceed €100,000.

Cyprus is signalling that it remains open for business, but not for lack of transparency.

Personal Income Tax Changes

The reform also introduces meaningful changes to personal taxation. The tax-free allowance increases to €22,000, with new progressive tax brackets applying thereafter.

Graduated deductions are introduced for families with children and students up to the age of 24, alongside additional deductions for qualifying loan interest and rent, green home investments including electric vehicles, and home insurance premiums against natural disaster risks.

These measures aim to support declared income, family households, and sustainable investment choices.

Strategic Considerations

This reform is not simply an increase in tax rates. It represents a structural shift toward transparency, substance, and long-term compliance.

For businesses, investors, and high-net-worth individuals, the coming period is critical. Existing structures should be reviewed, dividend strategies reassessed, and compliance frameworks strengthened well in advance of 2026.

Early planning will be key to ensuring efficiency and certainty under the new regime.

We at S. Dionysiou & Partners LLC advise on various matters related to corporate, complete legal guidance and assistance on the registration and memorandum matters. For any further information, you may contact us at info@dplawcyprus.com.

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