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After more than two decades, Cyprus has introduced a comprehensive reform of its tax framework. As of 1 January 2026, significant changes apply to both individuals and legal entities, with notable implications for Cyprus-registered regulated investment funds.
Key Changes
Corporate Income Tax has increased from 12.5% to 15%, aligning Cyprus with international minimum tax standards while maintaining one of the most competitive rates in the EU. The abolition of the Deemed Dividend Distribution (DDD) rule allows companies and funds to retain and reinvest profits without artificial tax leakage. Withholding tax on actual dividends has been reduced to 5%, significantly improving net investor returns compared to the previous Special Defence Contribution regime.
Additional reforms include an extended loss carry-forward period, enhanced deductions and incentives, abolition of stamp duty, and defensive measures for transactions with low-tax or blacklisted jurisdictions. A proposed flat 8% tax on crypto and certain investment gains remains subject to final legislation.
Impact on Cyprus Funds
For Cyprus-registered regulated funds, the framework remains highly attractive. Key benefits such as participation exemptions, the IP Box regime, and Alternative Investment Fund (AIF) tax efficiencies continue to apply, often resulting in low effective taxation. Reduced withholding tax and elimination of DDD support capital compounding and long-term reinvestment strategies, improving post-tax performance for investors. Greater regulatory clarity enhances legal certainty, while alignment with EU and international tax standards strengthens Cyprus' credibility as a compliant fund jurisdiction.
However, some challenges emerge. The higher corporate tax rate marginally reduces profitability, while defensive measures may impact investors from certain jurisdictions. Potential future changes regarding fund unit redemptions and increased compliance obligations may introduce additional operational complexity.
Eurofast's Take
Investors, whether institutional, retail, or non-resident, should evaluate how these changes align with their investment objectives. Tax-efficient structuring, economic substance, and ongoing monitoring of legislative developments are essential. Eurofast provides comprehensive support for businesses establishing funds in Cyprus or investing in existing regulated funds, offering tailored solutions to maximize returns while ensuring compliance with evolving tax requirements.
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.
