Cyprus Tax Reform 2026: Key Legal and Practical Considerations for Businesses and Individuals

The new tax reform package was approved by the House of Representatives in December 2025, published in the Official Gazette of the Republic of Cyprus on 31 December 2025, and applies, in general, as from 1 January 2026. The reform affects several core areas of Cyprus taxation, including corporate income tax, personal income tax, special defence contribution, capital gains tax, tax administration, tax collection, transfer pricing, crypto-assets, share-based remuneration schemes, and stamp duty.

The amendments are particularly relevant for Cyprus tax-resident companies, international groups with Cyprus entities, directors, shareholders, investors, employers, employees, landlords, property owners and high-net-worth individuals. Given the scope of the reform, existing corporate, contractual, employment and investment arrangements should be reviewed in order to assess whether any restructuring, documentation update or compliance action is required.

Corporate Taxation

The reform also amends the rules relating to corporate tax residency. The Cyprus tax residency framework now places greater emphasis on the incorporation test, while also preserving the relevance of double tax treaties where applicable. This is particularly important for Cyprus companies that may also have management, control, operations or substance in another jurisdiction. In practice, companies should not assume that Cyprus registration alone resolves all tax residency questions. Management and control, board decision-making, directors’ residence, substance, place of effective management and the terms of any applicable double tax treaty remain important factors to be considered.

The tax loss carry-forward period has also been extended from five to seven years. This development may be beneficial for companies with accumulated losses, start-ups, investment structures, businesses with cyclical income or companies undergoing restructuring. At the same time, companies should maintain proper accounting records and ensure timely tax filings in order to preserve their ability to utilise losses.

The reform also introduces or clarifies a number of additional corporate tax measures, including revised rules on group relief, capital allowances, research and development deductions, transfer pricing thresholds and anti-avoidance provisions. These changes should be reviewed carefully by companies engaged in intra-group financing, intellectual property exploitation, provision of services to related parties, or cross-border transactions.

Personal Income Tax and Employment-Related Matters

The reform revises the personal income tax bands and increases the tax-free income threshold to EUR 22,000. This change is expected to benefit a considerable number of individuals, particularly employees and self-employed persons.

At the same time, the reform introduces important provisions concerning certain employment-related payments, including benefits, incentives, ex gratia payments and termination-related compensation. In particular, amounts exceeding certain thresholds may be subject to specific tax treatment. Employers should therefore carefully review employment contracts, incentive plans, termination packages, early retirement schemes and bonus arrangements to ensure that the tax treatment is properly assessed before any payments are made.

The reform also introduces a special tax treatment for approved share-based remuneration schemes. This is particularly relevant for start-ups, technology companies, international groups and employers that use share options or equity-based incentives as part of their remuneration strategy. Proper structuring and prior approval of such schemes will be important in order to benefit from the favourable treatment.

Special Defence Contribution

The Special Defence Contribution regime has also been substantially amended. One of the key changes is the reduction of the SDC rate on dividends to 5%, subject to applicable conditions, exceptions and transitional rules. This change may be relevant for Cyprus tax-resident and domiciled individuals, shareholders, family-owned companies and group structures.

The deemed dividend distribution rules are abolished for profits earned from 1 January 2026 onwards. However, transitional provisions continue to apply in relation to profits earned before 2026. For this reason, Cyprus companies should maintain clear records distinguishing profits generated before and after 1 January 2026, especially where future dividend distributions are contemplated.

The reform also removes SDC on rental income, meaning that rental income will generally be subject only to income tax or corporate income tax, as applicable. This is a notable change for landlords, property-holding companies and investors in Cyprus immovable property.

Capital Gains Tax and Property-Rich Companies

The rules concerning property-rich companies have been revised. The threshold for companies deriving value from Cyprus immovable property has been reduced, meaning that transactions involving shares in companies holding Cyprus real estate may require closer analysis. This is particularly relevant for corporate acquisitions, group restructurings, real estate investment structures and indirect transfers of Cyprus immovable property.

Parties involved in share transfers, mergers, reorganisations or real estate-related transactions should therefore assess whether the revised capital gains tax rules may apply, especially where the value of shares is directly or indirectly linked to Cyprus immovable property.

Crypto-Assets and Digital Transactions

The reform introduces specific provisions for the taxation of gains arising from crypto-assets. Certain gains from the disposal, exchange, gift or use of crypto-assets may be subject to a special flat tax rate of 8%. The treatment of crypto-related losses is also restricted, as such losses may generally be offset only against gains from crypto-assets of the same person and cannot be carried forward or used for group relief.

This development is important for individuals, companies, investors and businesses involved in digital assets, crypto trading, crypto payments or blockchain-related activities. Proper transaction records, valuation evidence and tax analysis will be essential.

Tax Administration, Compliance and Enforcement

The reform strengthens the powers of the Cyprus Tax Department and introduces stricter compliance and enforcement measures. These include amendments relating to filing obligations, penalties, books and records, electronic payment of rent, liability of company directors, and the ability of the Commissioner of Taxation to secure unpaid tax liabilities in certain circumstances.

A particularly important development concerns the liability of company directors. Directors may remain liable for acts or omissions committed during their term of office, even if they have subsequently resigned or have been removed from the register of directors. This reinforces the need for directors to ensure proper tax compliance during their appointment and to maintain evidence of decisions, filings, tax payments and professional advice received.

The Commissioner of Taxation has also been granted enhanced powers in relation to the collection of tax debts, including, in certain cases, the ability to register security over shares where unpaid tax liabilities exceed the relevant statutory threshold. These measures underline the importance of timely tax compliance and proactive management of tax obligations.

Abolition of Stamp Duty

One of the most practically significant changes is the abolition of stamp duty with effect from 1 January 2026. As a result, documents executed from 1 January 2026 onwards are no longer subject to stamp duty under the previous stamp duty regime.

However, transitional rules remain important. Documents that were drawn up and signed by at least one contracting party on or before 31 December 2025 may still fall within the previous stamp duty framework and may still need to be dealt with under the procedures applicable to legacy documents. Therefore, the date of execution remains crucial when reviewing older agreements, sale contracts, loan agreements, leases, share purchase agreements and other legal instruments.

The abolition of stamp duty is expected to simplify contractual and transactional practice in Cyprus, particularly in corporate, commercial, financing and real estate matters. Nevertheless, it does not remove other applicable costs, taxes, fees or filing obligations, such as VAT, land registry fees, transfer fees, court fees or Registrar of Companies fees.

Practical Impact

The Cyprus tax reform has practical legal and commercial implications for corporate governance, transaction structuring, employment arrangements, dividend planning, real estate transactions, shareholder relations, financing arrangements, director liability and compliance procedures.

Businesses and individuals should review their existing structures and arrangements in light of the new framework. Particular attention should be given to Cyprus tax residency, dividend distributions, pre-2026 retained profits, shareholder loans, intra-group transactions, property-holding structures, employment incentive schemes, crypto-asset transactions, rental income and legacy agreements signed before 1 January 2026.

Our team remains available to assist clients with reviewing the legal and practical implications of the Cyprus tax reform, coordinating with tax advisers where necessary, updating corporate and contractual documentation, and ensuring that compliance procedures remain aligned with the new legislative framework.