Cyprus As A Corporate Hub In The Post-Pillar Two Era

In December 2025, the Cyprus Parliament voted into law the new tax rules under the so-called Cyprus tax reform, following two years of discussions, public consultations, and feedback received from the public, industry professionals, and various bodies, organizations and associations.

Implementing Pillar Two

One of the most notable changes introduced is the full implementation of Pillar Two. As a result, the Cyprus corporate tax rate, which previously stood at 12.5%, has been increased to 15%. Effective from 01 January 2026, this corporate tax rate applies universally to all Cyprus tax resident companies (including any permanent establishments of foreign entities), demonstrating Cyprus’ commitment to implementing the OECD’s global minimum taxation framework.

A question that is frequently raised is whether Cyprus will maintain its attractiveness as a jurisdiction for investment and as an international business hub. In practice, the introduction of the 15% corporate tax rate aligns Cyprus with the OECD global minimum tax rules while keeping the rate relatively competitive compared to many other jurisdictions (especially within Europe).

Other Tax Changes

At the same time, the reform has introduced several incentives and supportive measures. The special defence contribution (SDC) on dividends (which is applicable on tax residents and domiciled in Cyprus) was reduced from 17% to 5%, thus benefitting local tax resident shareholders and entrepreneurs. In addition, a higher tax-free income threshold for individuals has been introduced, while the personal income tax bands were widened, providing relief to taxpayers. Moreover, tax allowances have been provided to families. The introduction of taxation rules for crypto assets (at the flat rate of 8%) also adds greater clarity and tax certainty for those operating in this evolving sector.

Cyprus Tax Incentives

Importantly, Cyprus’ existing tax advantages remain intact. The well-known Non-Dom regime continues to apply, as does the IP tax regime, both of which have historically contributed to Cyprus’ attractiveness for international investors and businesses. Furthermore, Cyprus continues to offer no capital gains tax on profits arising from the sale of titles (including shares and securities), as well as no withholding taxes on dividend, interest, or royalty payments.

In addition to the above, incentives provided to non-Cyprus residents opting to relocate to Cyprus and work there continue to apply. Namely such individuals would qualify for the non-Dom regime, while provided they are

earning salaries over €55,000 annually, and were not Cyprus residents for at least 15 consecutive years prior to their employment, they can claim a 50% exemption on income tax for 17 years. This applies to employment commencing on or after 1 January 2022. Moreover, Cyprus does not impose any inheritance, wealth or gift taxes.

In Conclusion

Despite the implementation of the OECD’s Pillar Two framework and the increase in the corporate tax rate, Cyprus remains well-positioned as a competitive and attractive jurisdiction for international business. Its combination of compliance with global standards, competitive tax rates, and a broad range of incentives (as well as the sun, the sea and the Mediterranean lifestyle) ensures that Cyprus will continue to remain relevant as a corporate hub and a business centre in the post-Pillar Two era.