Cyprus Tax Reform 2026: Key Changes For Individuals And Businesses

Cyprus approved a comprehensive tax reform package on 22 December 2025, marking the first major overhaul of the tax system in more than twenty years. The new framework aims to strengthen Cyprus' competitiveness as an international business centre while providing targeted relief to individuals and families.

Most measures will apply from 1 January 2026.

This article outlines the main changes affecting companies, individuals, and tax compliance.

Corporate Tax Changes in Cyprus

Corporate Income Tax Increase

The corporate income tax rate will increase from 12.5% to 15% as from 1 January 2026.
This change aligns Cyprus with OECD global minimum tax rules applicable to multinational groups.

Special Defence Contribution (SDC) Amendments

Significant changes apply to SDC:

• SDC on dividends reduced from 17% to 5%
• SDC on rental income abolished
• SDC on deemed dividend distribution abolished for profits earned after 2026

These measures reduce taxation on profit distribution and investment income.

Stamp Duty Abolition

Stamp duty is abolished for most transactions, subject to specific statutory exceptions, excluding:

• Real estate contracts
• Banking agreements
• Insurance contracts

This reform reduces transactional costs for businesses and individuals.

Cryptocurrency and Share-Based Remuneration

The new framework introduces a flat 8% tax on:

• Cryptocurrency gains
• Gains arising from approved stock option under employer schemes

Business Losses, R&D and Expenses

Additional business incentives include:

• Extension of loss carry-forward from 5 to 7 years
• Extension of the 120% R&D super-deduction until 2030
• Increase of the entertainment expense deduction cap to €30,000 (from €17,086)

Personal Income Tax Changes

Increase in Tax-Free Threshold

The personal income tax-free threshold increases from €19,500 to €22,000, providing relief to low and middle-income earners.

New Personal Income Tax Brackets

From 2026, personal income tax will apply as follows:

• 20% on income from €22,001 to €32,000
• 25% on income from €32,001 to €42,000
• 30% on income from €42,001 to €72,000
• 35% on income above €72,001

New Personal Tax Reliefs and Deductions

Child and Student Deductions

New deductions apply for dependent children or students up to the age of 24:

• €1,000 for the first child
• €1,250 for the second child
• €1,500 for the third and each additional child

Eligibility depends on total household income:

• Up to €100,000 for 1–2 children
• Up to €150,000 for 3–4 children
• Up to €200,000 for 5 or more children

Housing, Green and Resilience Incentives

The reform introduces deductions for:

• Loan interest and rent, up to €2,000
• Green investments, including electric vehicle purchases, up to €1,000
• Home insurance against natural disasters, up to €500

Severance Payments

Severance payments paid due to employment termination will be taxed at 20%, with a €200,000 tax-free allowance.

Capital Gains Tax

Capital gains tax-free thresholds have been increased, providing relief on qualifying disposals.

Anti-Evasion Measures and Compliance Obligations

Mandatory Tax Return Filing

All individuals aged 25 and over will be required to submit annual income tax returns

Electronic Rent Payments

Rent payments exceeding €500 will be required to be made electronically, with implementation expected from 1 July 2026.

Expanded Enforcement Powers

The Tax Commissioner is granted enhanced authority, including:

• Requests for asset and liability statements covering up to six years
• Access to banking records from Cyprus-based banks
• Power to seal businesses for serious non-compliance
• Ability to freeze shares for tax debts exceeding €100,000

Affected taxpayers retain the right to challenge enforcement actions through the courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.