Further to the publication of the Cyprus tax reform package in the Official Gazette of the Cyprus Republic on 31 December 2025, we summarise below the principal changes across the key tax laws. Cyprus enacted its most significant tax reform in over 20 years, with most changes effective from 1 January 2026.
The reform affects individuals, businesses, investors and groups with Cyprus structures. The majority of the measures are effective from 1 January 2026, unless stated otherwise.
Key highlights for individuals
- New personal income tax bands: tax-free income increases to €22.000, with revised progressive rates up to 35%.
- Mandatory income tax return filing: From tax year 2026 onwards, Cyprus tax resident individuals aged 25 to 70 (i.e. up to completion of the 71st year) are required to submit an annual personal income tax return regardless of income level, provided they have income falling under Article 5. Individuals under 25 are required to file if their gross income exceeds the tax-free threshold.
- New household and family deductions (Article 14B): Income-tested reliefs based on family size.
- Child deductions of €1.000 / €1.250 / €1.500 per child (doubled for single-parent families).
- Up to €2.000 deduction for main residence loan interest or rent.
- Up to €1.000 deduction for green investments, with 4-year carry-forward.
- Dividends: SDC reduced to 5%, with revised deemed-domicile rules and an optional €50.000 fixed annual SDC for five years.
- Cryptoassets: profits taxed at a flat 8%, with losses ring-fenced within the same tax year.
Key highlights for companies and groups
- Corporation tax rate increased to 15%.
- Deemed distribution rules abolished (with transitional rules for profits up to 2025).
- Stamp duty abolished on contracts executed from 1 January 2026 (subject to statutory exceptions).
- Transfer pricing documentation thresholds increased: €5m (goods), €10m (financial), €2.5m (other transactions).
- Higher penalties and extended record-retention rules increase compliance exposure.
Capital Gains Tax – important changes
- CGT now applies to indirect disposals where 20% (previously 50%) of share value derives from Cyprus immovable property.
- Listed-shares exemption limited to regulated stock exchanges (with grandfathering).
- Increased lifetime CGT exemptions (up to €150.000 for primary residence; €450.000 in loan restructuring cases until 2030).
Getting into the details...
1. Personal Income Tax, new tax bands from tax year 2026
The personal income tax bands are amended with effect from tax year 2026. The new brackets are:
- Up to €22.000 – 0%
- €22.001 to €32.000 – 20%
- €32.001 to €42.000 – 25%
- €42.001 to €72.000 – 30%
- Over €72.000 – 35%
Practical impact
- Employees and high earners should review 2026 payroll projections and any variable remuneration timing.
- Self-employed individuals should revisit 2026 provisional tax calculations in light of the new bands.
2. New obligation to submit a personal income tax return
From tax year 2026 onwards, any individual who is a Cyprus tax resident and has completed the 25th year of age but has not completed the 71st year of age by 31 December of the tax year is required to submit a personal income tax return, irrespective of the level of income earned, provided the individual has income falling within Article 5 of the Income Tax Law.
In addition, individuals under the age of 25 are required to submit a personal income tax return where their gross income exceeds the tax-free threshold applicable under the personal income tax bands.
This represents a significant change from the prior regime and is expected to bring a broader group of individuals within the annual tax filing framework.
3. Personal income tax – new household and social deductions
A new Article 14B is introduced in the Income Tax Law, providing targeted personal deductions, subject to family income thresholds.
Income thresholds to qualify
The deductions apply provided that total family income does not exceed:
- €40.000 in the case of a single person
- €100.000 where there are no dependent children
- €100.000 where there are up to two (2) dependent children
- €150.000 where there are three (3) or four (4) dependent children
- €200.000 where there are five (5) or more dependent children
The same income thresholds apply in the case of single-parent families.
Child-related deductions
For each parent, the following annual deductions apply:
- €1.000 for the first dependent child
- €1.250 for the second dependent child
- €1.500 for the third and each additional dependent child
For single-parent families or where one parent has full custody, the above amounts are doubled.
Main residence – loan interest or rent
An annual deduction of up to €2.000 per spouse / partner / single person is allowed for either:
- Interest paid on a servicing loan for the purchase or construction of a main residence in Cyprus, or
- Rent paid for a main residence in Cyprus
Conditions:
- The main residence must be owned by at least one spouse/partner (where applicable)
- The loan must be in the name of at least one spouse/partner
- Any state grant or subsidy received reduces the eligible amount
Green and sustainable investments
An annual deduction of up to €1.000 per person is allowed for capital expenditure relating to:
- Energy efficiency upgrades of a main residence
- Renewable energy systems (including photovoltaic systems)
- Energy storage batteries
- Electric vehicles registered in Cyprus
Where the €1.000 cap is not fully utilised in a year, the unused amount may be carried forward for up to four (4) years.
Overall limitation
The total personal deductions under Article 14B cannot exceed 20% of taxable income, before these deductions are applied.
Practical impact
- Families with children benefit from direct reductions in taxable income
- Relief is targeted and income-tested, favouring middle-income households
- Green investments and principal residence costs are now explicitly incentivised
- Tax planning for 2026 should factor in family composition and income aggregation
4. Corporation tax rate increased to 15% from tax year 2026
The reform increases the Cyprus corporation tax rate from 12,5% to 15%.
Practical impact
- Groups should update effective tax rate models, deferred tax calculations, and budgeting for 2026 onward.
- Structures relying on Cyprus taxable margins should revisit transfer pricing, financing spreads, and pricing policies.
5. Special Defence Contribution (SDC), major changes to dividend taxation and deemed distribution
5.1. SDC on dividend income for individuals reduced to 5%
Dividend income received by an individual who is Cyprus tax resident is subject to Special Defence Contribution (SDC) at a rate of 5%, subject to the domicile and deemed domicile provisions of the SDC Law.
Important mechanics included in the law
Dividends are reduced by amounts previously treated as distributed under the prior deemed distribution rules, and by dividends ultimately sourced from amounts on which SDC has already been paid.
5.2. Deemed dividend distribution, old regime is phased out, transitional charging rules remain for profits up to 2025
The law now replaces the prior dividend charging framework and introduces a revised regime, including new articles and transitional provisions which still refer to the old deemed distribution rules for profits up to tax year 2025.
In particular, the reform introduces a new set of provisions, including rules on “concealed dividend distributions” and related reporting obligations.
5.3. New concept, concealed dividend distribution and reporting
Where dividends are paid, including concealed dividend distributions calculated under the new rules, the company must issue shareholder certificates showing the dividend amount, the concealed distribution amount, the SDC withheld, and the year of profits out of which the dividend was paid.
5.4. Transitional provisions affecting intercompany dividends from profits of 2024 and 2025
The reform includes specific transitional charging and payment timing provisions for dividends paid out of 2024 and 2025 profits, including scenarios where a Cyprus resident company receives dividends from another Cyprus resident company.
It also provides for deferred payment deadlines in certain cases, namely 31 December 2028 and 31 December 2029 for specified dividend categories linked to 2024 and 2025 profits.
5.5. Anti-avoidance on interposed companies
Where, based on the Tax Commissioner’s assessment, an interposed company does not serve a substantive commercial or economic purpose and the main purpose is avoidance, reduction, or deferral of SDC, the Commissioner may treat the dividend as paid to the individual(s) behind the structure and seek SDC accordingly.
5.6. Domicile test, deemed domicile tightened, and a new alternative SDC option
The SDC domicile deeming rules are amended. An individual who is Cyprus tax resident for at least 17 out of the last 20 years is treated as having acquired domicile in Cyprus for SDC purposes, and the deemed domicile continues until completion of 20 years of non-residence.
In addition, a non-Cypriot domicile of origin individual who becomes deemed domiciled may opt for an alternative method of SDC taxation by paying a fixed annual amount of €50.000 for a binding five-year period.
Practical impact
- Individuals receiving dividends should reassess dividend policies and timing for 2026 onwards.
- Groups should revisit holding structures and substance, particularly where Cyprus intermediate companies are used.
- High net worth individuals should evaluate whether the fixed annual SDC option is beneficial based on expected dividend flows.
6. Abolition of stamp duty from 1 January 2026
The Stamp Duty laws are abolished, subject to any statutory exemptions, with effect from 1 January 2026.
Practical impact
- Transaction costs for agreements historically falling within stamp duty should reduce.
- Deal teams should still ensure proper execution, evidencing, and document retention, especially for audit trail and third party requirements.
7. Capital Gains Tax (CGT) – significant amendments effective from 1 January 2026
The tax reform introduces important changes to the Capital Gains Tax (CGT) regime, expanding its scope and revising key exemptions.
Indirect disposals of Cyprus immovable property
CGT will now apply to the indirect disposal of shares in a company where at least 20% of the fair market value of the shares disposed of is derived, directly or indirectly, from immovable property situated in Cyprus.
This threshold is reduced from 50% to 20%, significantly widening the circumstances under which CGT may arise on share disposals.
Listed shares
The existing exemption for the disposal of shares listed on a “recognized” stock exchange is replaced with an exemption limited to shares listed on a “regulated” stock exchange. Grandfathering provisions apply for shares listed on a recognized (but non-regulated) stock exchange that were acquired before 1 January 2026.
In addition, no CGT is imposed on the disposal of shares listed on a non-regulated stock exchange where the total disposal proceeds do not exceed €50.000 in a tax year. If the €50.000 threshold is exceeded, CGT applies accordingly.
Lifetime CGT exemptions for individuals
The reform increases certain one-off lifetime CGT exemptions as follows:
- €30.000 general exemption
- €50.000 exemption for disposal of agricultural land
- €150.000 exemption for disposal of a primary residence
Furthermore, the exemption for disposal of a primary residence as part of a loan restructuring process is increased to €450.000, and this enhanced exemption applies until 31 December 2030.
Practical impact
- Share disposals involving property-rich structures require enhanced CGT analysis
- Real estate holding structures and exit strategies should be reviewed before 2026
- Documentation supporting valuation splits between property and non-property assets becomes increasingly important
8. Transfer Pricing – increased documentation thresholds
The reform revises the thresholds for mandatory transfer pricing documentation, reducing compliance obligations for smaller and medium-sized groups. The new thresholds are increased to:
- €5 million for transactions in goods
- €10 million for financial transactions
- €2.5 million for all other controlled transactions
The thresholds apply on a per-category basis.
Practical impact
- Fewer taxpayers will fall within the scope of full transfer pricing documentation
- Groups close to the revised thresholds should monitor transaction volumes carefully
- Transfer pricing policies remain relevant even where documentation thresholds are not met
9. International Trusts Law change effective 1 January 2026
The International Trusts Law is amended by deleting article 12(2), effective 1 January 2026. This change enhances legal certainty and strengthens the Cyprus International Trust framework.
Practical impact
- Existing and new trust arrangements should be reviewed, especially where governance, reserved powers, or administration terms reference the previous framework.
10. Income Tax Law amendments, administration, timing, and specific provisions
The Income Tax Law amending legislation takes effect from 1 January 2026, with certain provisions applying from tax year 2026 onwards and certain provisions from 1 July 2026. Key points include:
10.1. Foreign tax credit timing and limitation periods
The law introduces a mechanism that may allow an assessment to be made beyond six years in certain cases where foreign tax is finalised later, provided specified timing conditions are met.
10.2. Employee share incentive plans, conditions referenced in the amendments
The reform includes provisions that refer to share incentive plan conditions, including minimum vesting, non-transferability before vesting, share class conditions, and a minimum exercise or acquisition price not below 50% of share value at the relevant approval date.
11. Tax Collection Law changes, payment deadlines, interest start dates, and penalties
The reform aligns payment deadlines with filing deadlines in certain cases, and clarifies when interest starts accruing from tax year 2026 onwards. It also introduces an additional 5% charge where two months have elapsed from the last day of the payment deadline and the omission continues, as reflected in the amended charging provisions.
12. Increase in audit threshold for self-employed individuals
The tax reform increases the gross income threshold which determines when a physical person is required to prepare audited financial statements for Cyprus income tax compliance purposes.
Under the previous position, a physical person was required to prepare audited financial statements where annual income from trade or business, rents, dividends, interest, royalties or income relating to trading goodwill exceeded €70.000.
Under the new position, the relevant threshold is increased from €70.000 to €120.000. This applies as part of the amendments to the income tax compliance framework and is intended to reduce compliance burden for smaller taxpayers.
Implications
- Individuals with annual income up to €120.000 should generally fall outside the audited financial statements requirement under the amended rule, with a corresponding reduction in audit costs.
- Those near the €120.000 threshold should monitor income carefully, as exceeding the threshold in a given year would trigger the audit requirement for that year.
- Proper books and records must still be maintained, irrespective of audit obligation, and the Tax Department retains enquiry and audit powers.
13. Employee share incentives, 8% flat tax for approved plans
A new provision introduces a flat 8% tax rate on benefits arising to a Cyprus tax resident employee or company director from:
- the grant of share option rights, or
- the grant of share purchase rights, where these arise under an employer incentive plan approved by the Tax Commissioner.
Mechanics and limitation
- The 8% flat rate applies up to a benefit amount equal to two times the employee or director’s annual remuneration from that employer in the year in which the vesting period ends.
- Any excess benefit is taxed under the normal rules of the Income Tax Law.
Practical impact
- Employers considering equity incentives should assess whether their plan should be structured for approval.
- Employees and directors should model the capped portion taxed at 8% versus the portion taxed at progressive rates.
14. Record retention and interaction with tax audits
The reform amends the document retention rule by providing that, where a tax audit commences in the final year of the normal retention period, the retention period is extended until:
- completion of the audit, or
- one year from the audit start date, whichever occurs earlier.
Practical impact
- Groups and individuals should revisit retention schedules and ensure audit readiness for 2025 and 2026 years.
15. Increased administrative charges and penalties in specific compliance cases
The reform increases certain fixed monetary charges, including moving from lower historic amounts (for example €100 and €200) to materially higher charges depending on whether the person is an individual or a company, and depending on whether a company exceeds €1.000.000 turnover or assets.
The revised structure includes, indicatively:
- For individuals, charges increased to €500 or €1.000 depending on the type of non-compliance.
- For companies with turnover or assets above €1.000.000, charges increased to €2.000 or €4.000 depending on the type of non-compliance.
- For other companies, charges increased to €1.000 or €2.000 depending on the type of non-compliance.
Practical impact
- Penalty exposure for procedural non-compliance becomes significantly higher from the effective date, so filing, registration, and documentary obligations should be reviewed.
16. Introduction of flat 8% income tax on cryptoasset disposals
The reform introduces Article 20E of the Income Tax Law, establishing a standalone crypto taxation regime.
Scope
- Profits arising to any person from the disposal of cryptoassets are subject to income tax at a flat rate of 8%.
- The regime applies independently of the capital gains provisions.
Loss treatment
- Losses from crypto disposals may be offset only against crypto gains.
- Offsetting is allowed only within the same tax year.
- No carry forward, carry back, or surrender of losses is permitted.
Practical impact
- Separate tracking of crypto gains and losses by tax year is essential.
- Disposal timing becomes critical; as unused losses are permanently lost.
- This represents Cyprus’ first explicit statutory framework for crypto taxation.
For a more in-depth discussion on how this issue could impact your business, please contact us at tax@stavroucpa.com
Cyprus Tax Reform effective from 1 January 2026 – Overview of Key Changes for Companies and individuals