Cyprus Tax Reform 2026: 15% Corporate Tax

• The 15% rate applies to all profits generated from January 1, 2026, onwards. There is no transition period for existing companies; however, profits from 2025 and earlier remain permanently subject to the 12.5% ​​regime.
• The reform package simultaneously reduced the special defense contribution on dividends from 17% to 5%, abolished the deemed distribution rule and stamp duty, and extended the loss carry-forward period to seven years. For many structures, the overall tax burden decreased rather than increased.
• The 15% rate and the OECD global minimum tax are distinct matters. Pillar Two rules apply to groups with a turnover of €750 million or more, whereas the Cypriot 15% rate applies to all entities.
• Undistributed profits accumulated before December 31, 2025, are subject to the old 17% rate if distributed by December 31, 2031. This window necessitates a planned payout schedule rather than a one-off distribution made "just in case."
• For controlling persons based in Russia, the increase in the Cypriot rate is partially offset by a foreign tax credit: Article 23 of the double tax treaty with Cyprus was not suspended by the decree of August 8, 2023.
• The new place-of-incorporation residency test and measures targeting payments to low-tax jurisdictions impact "dormant" companies and Cyprus–BVI structures more significantly than the 2.5 percentage point rate hike itself.

Cyprus’s corporate tax rate did indeed rise from 12.5% ​​to 15% starting with 2026 profits; however, for most owners of Cypriot companies, the total tax burden following the reform has actually decreased rather than increased. This is because the same legislative package reduced the Special Contribution for Defence on actual dividends from 17% to 5% and eliminated the mandatory deemed profit distribution requirement entirely. Headlines highlighting the rate hike focus on just one provision within a law comprising roughly 40 clauses, the majority of which work to the taxpayer's advantage.

The legislation was passed by the Cyprus House of Representatives on December 22, 2025, published in the Official Gazette on December 31, 2025 (Issue No. 5070), and entered into force on January 1, 2026. TThis is the first systemic overhaul of the Cypriot tax system since the early 2000s.

What Has Actually Changed

It is best to view the reform not merely as a list of amendments, but as three distinct storylines: the tax rate, profit distribution, and administration. The first aspect boils down to a single figure and is the most widely discussed. The second aspect has a more profound impact on the economics of owning a Cypriot company than the first. The third aspect has barely featured in Russian-language reviews, even though it poses risks for structures that have operated for years under a "register-and-forget" approach.

The 15% Rate and Its Link to OECD Rules

Cyprus raised its rate to avoid losing the tax differential to foreign treasuries. The OECD’s global minimum tax operates on this principle: if a group’s effective tax rate in a given country falls below 15%, another jurisdiction collects the shortfall via a "top-up" mechanism. With Cyprus’s previous 12.5% ​​rate, that 2.5 percentage-point difference flowed out of the country, leaving Cyprus with nothing. By raising its own rate, the country retained those funds.
This is where the confusion found in almost all publications from January 2026 arises. The "Pillar Two" rules apply only to multinational groups with consolidated revenue of at least €750 million in two of the last four fiscal years. In contrast, the Cypriot 15% rate applies to everyone without exception: a trading company with a €300,000 turnover, a five-person IT studio, or a non-operating holding company. Cyprus deliberately opted for a uniform rate rather than a separate top-up regime for large groups; while this simplifies administration, it means everyone pays.
At the same time, full exemptions remain in place: dividends received by a Cypriot company, gains from the sale of securities, and profits from foreign permanent establishments continue to be tax-exempt, provided certain conditions are met. The IP Box regime remains intact: the 80% exemption on qualifying intellectual property profits stands, though the effective tax rate has risen from approximately 2.5% to 3%. The notional interest deduction on new capital also remains unchanged. The 120% super-deduction for research and development expenses has been extended until 2030, and the annual limit for entertainment expenses has increased from €17,086 to €30,000.

Changes implemented alongside the rate hike

The Special Defence Contribution (SDC) on actual dividends for Cyprus-domiciled residents has been reduced from 17% to 5%, applicable to profits generated from January 1, 2026. The SDC on rental income has been abolished entirely. Stamp duty, in place since 1963, has been completely eliminated, subject to limited exceptions in the real estate, banking, and insurance sectors.
The "deemed distribution" rule has been abolished. Previously, companies retaining profits within the business were still deemed to have distributed 70% of them within two years of the financial year-end and were liable for the SDC. Now, profits can be retained within the company indefinitely. In exchange, a "hidden dividend" rule has been introduced: if a shareholder uses company assets for personal purposes or acquires property below market value, a 10% SDC is levied on the difference.
Tax losses can now be carried forward for seven years instead of five. The mandatory audit threshold has been raised from €70,000 to €120,000 in turnover, exempting a significant number of small companies from audit requirements. However, the deadline for filing corporate tax returns has been brought forward: the due date is now January 31, rather than March 31 of the second year following the reporting period. The tax return for 2026 must be filed by January 31, 2028, effectively giving the accounting department two months less time to close out the year.

Residency test based on place of registration

This change received little discussion, yet its implications are far-reaching—more so than those regarding tax rates. Previously, a Cypriot company was considered a tax resident of Cyprus only if its management and control were based on the island—meaning board meetings, minutes, and actual decision-making took place there. A company managed from elsewhere might not be classified as a Cypriot resident.
Starting in 2026, any company registered in Cyprus is automatically deemed a Cypriot tax resident, unless a double taxation treaty assigns residency to another country based on tie-breaker rules. For an owner based in Moscow or Almaty who uses a Cypriot company merely as a formal shell while actually managing it from their home city, this entails two simultaneous consequences: the requirement to file Cypriot reports and pay Cypriot taxes remains in force, while tax authorities in Russia or Kazakhstan can—if they choose—prove that the company is effectively managed within their jurisdiction. Dual residency in the absence of a functioning treaty is a costly arrangement.

The value of Cyprus-generated profit after the reform

Abstract percentages mean little until applied to a specific amount and a specific owner. Let’s consider a trading company with an annual taxable profit of €500,000 and look at what the beneficiary actually receives in three typical scenarios.

Owner is a non-resident of Cyprus for tax purposes

At a 12.5% ​​rate, the company paid €62,500 in tax, leaving €437,500. At 15%, the tax is €75,000, leaving €425,000. The difference is €12,500 per year.
There is no withholding tax on dividend payments made from Cyprus to non-residents—neither before nor after the change. This means a beneficiary from Russia, Kazakhstan, or the UAE receives the full €425,000 without additional Cypriot deductions. The loss compared to the 2025 regime is 2.5% of the profit; that is the entire impact of the reform for this scenario. Beyond this point, the matter shifts to taxation in the owner's country of residence.

Owner is a Cyprus tax resident with domicile

Here, the picture changes completely. Under the 2025 rules, the owner received €437,500 in dividends, paid a 17% Special Defence Contribution, and retained €363,125. Under the 2026 rules, they receive €425,000, pay 5%, and retain €403,750.
The gain is €40,625 per year on the same profit. The total tax burden across the "profit-to-dividend" chain has dropped from approximately 27.4% to 19.3%. For Cyprus-domiciled entrepreneurs, this represents the most significant improvement in decades—a key reason why the reform passed through parliament without opposition from the business community.
"Non-dom" status holders see no change to their core benefits: the Special Contribution for Defence (SCD) on dividends, interest, and capital gains remains at 0% for the first 17 years of residency. They face the same €12,500 cost as non-residents. However, a new option has been introduced: after the initial 17-year period, the status can be extended for two additional five-year terms—at a cost of €250,000 per term—bringing the total benefit horizon to 27 years. Applications must be submitted by June 30 of the first year of the period; the fee is non-refundable and cannot be offset against other taxes. The math makes sense for investment portfolios generating at least €1 million annually in dividends and interest.

Profits earned before 2026 remain subject to existing rules

Undistributed profits earned before December 31, 2025, remain subject to the old 17% SCD rate if paid out as dividends by December 31, 2031. After January 1, 2032, such profits are deemed automatically distributed.
Separate transitional rules apply to the deemed distribution of profits for 2024 and 2025. The practical takeaway is simple: undistributed profits must be categorized by the year they were generated, as the applicable rate depends on the year. A company that records undistributed profits as a single lump sum will find itself unable to substantiate the origin of every euro by 2031.
Expert insight by IT-OFFSHORE.

"During the first half of 2026, we analyzed dozens of Cypriot structures belonging to clients from Russia and the CIS, and in almost no instance did we find the 2.5 percentage point differential to be a genuine problem. Two real issues did emerge, however. The first concerns companies where accumulated retained earnings from a six-to-eight-year period appear as a lump sum without a year-by-year breakdown; as of 2026, this amount became legally heterogeneous, and retroactively segregating it is more costly than maintaining proper records from the start. The second issue involves holding structures where the Cypriot entity is topped by an entity in the BVI or Jersey; for these, the reform entails not merely a 2.5-point rate difference, but the need to satisfy substance requirements or restructure ownership. We always begin not by asking "what is the new rate?" but by asking "where are decisions regarding your company physically made, and who sits higher up the chain?" The answer to that question has a greater impact on the calculation than any tax rate".

How the reform looks from Russia and the CIS

Russian-language overviews of the reform largely just restate the Cypriot law and stop short of the most practical aspect: how it interfaces with the Russian tax regime. Yet, the owner of a Cypriot company residing in Russia pays tax twice under different sets of rules, and the final outcome depends on how those rules interact.

Suspension of the agreement did not eliminate the tax credit

A Decree by the President of Russia (No. 585 dated August 8, 2023) suspended the operation of several articles of the agreement with Cyprus. Specifically, Articles 5–22, 24, 27, and 29 of the 1998 agreement were suspended. This means that preferential rates for dividends, interest, and royalties on payments from Russia to Cyprus no longer apply, and withholding is now based on standard Russian domestic rates.
Article 23 of the agreement, which addresses the elimination of double taxation, was not included in the list of suspended articles. The agreement itself has not been denounced and remains formally in effect. For a Russian resident claiming a credit for Cypriot tax against their Russian tax liability, this is a crucial detail that is rarely discussed. A specific provision of the Tax Code regarding Controlled Foreign Companies (CFCs) also applies independently: the tax calculated on CFC profits is reduced by the amount of tax paid on those same profits abroad, provided there is documentary proof.

Ministry of Finance lists and the end-of-2026 deadline

Cyprus is included in the general list of offshore zones approved by Russian Ministry of Finance Order No. 86n (dated June 5, 2023), which encompasses all "unfriendly states." However, Cyprus is not included in the specific, narrower list established by Order No. 35n (dated March 28, 2024). A special list has been introduced for the 2024–2026 period, applying to CFC profit exemptions, CFC profit adjustments, and various corporate income tax rules.
As long as Cyprus remains off this special list, owners of Cypriot companies retain the relevant exemptions—at least until the end of the 2026 tax period. What happens from 2027 onwards depends on whether the special list is extended and which countries are included. Planning a structure with a horizon beyond 2027 based on Cyprus's current status means relying on a temporary rule. This is a situation where it is wiser to decide on changing or duplicating jurisdictions in advance, rather than waiting until a new order is published.

CFC Profit: When a Rate Hike Works in Your Favor

The profit of a Controlled Foreign Company (CFC) is included in the tax base of the Russian controlling person if it exceeds RUB 10 million per year. A Russian corporate entity pays corporate income tax on this amount at a rate of 25%, while an individual pays personal income tax (NDFL) based on a progressive scale.
Now, factor in the tax credit mechanism. A Cypriot company paid 15% instead of the previous 12.5%. The Russian controlling entity (a corporation) pays the difference to reach the 25% rate. At a 12.5% ​​rate, the additional payment was 12.5 percentage points; at 15%, it is 10 points. The total amount paid remains the same; it is simply that more money stayed in Cyprus and less went to the Russian budget. In this scenario, the Cypriot rate hike is economically neutral—and, given certain exchange rate fluctuations and timing differences, may even be more convenient.
The alternative option—paying a fixed tax on CFC profit—has become more expensive starting in 2025: the cost is RUB 5 million for a single company and up to RUB 25 million for five or more companies, whereas previously, a single flat fee applied regardless of the number of companies. It makes sense to recalculate the cost-effectiveness of the fixed regime following the Cyprus reform—the break-even point has shifted.

For whom the Cyprus reform is less favorable

The reform did not affect all entities in Cyprus equally. There are two categories of structures for which the changes are particularly painful; in both cases, the issue lies not with the tax rate itself, but with defensive measures and substance requirements.

Holding companies with a parent entity in a low-tax jurisdiction

As of January 1, 2026, defensive measures regarding payments to low-tax jurisdictions came into effect. The Cyprus Tax Department issued Circular No. 1/2026 on April 9, 2026, listing the jurisdictions classified as low-tax for the current tax year: Anguilla, Vanuatu, Bermuda, the British Virgin Islands (BVI), the Cayman Islands, Guernsey, the Isle of Man, Turks and Caicos, the Bahamas, Bahrain, and Jersey.
Dividends paid by a Cypriot company to a related entity in such a jurisdiction—where the recipient holds a stake of 50% or more—are subject to withholding tax. There is a discrepancy in the interpretation of the law: KPMG and PwC interpret the rule as requiring a 17% withholding tax, while other sources cite 5%. Interest and royalty payments made to low-tax jurisdictions are not tax-deductible for the Cypriot payer. Royalties paid to jurisdictions on the EU blacklist are subject to a 10% withholding tax. An exemption is possible if the entity meets a "substance test": compliance with five out of six criteria is required, including the presence of local directors, employees, an office, and actual operating expenses.
The classic "Cypriot operating company owned by a BVI holding company" structure—widely established across Russia and the CIS over the years—now requires either genuine operational substance at the top level or a restructuring of ownership. The difference between a 0% and a 17% tax rate on outbound dividends is significant enough to warrant a complete overhaul of the corporate structure. If you maintain such a structure, it is advisable to conduct a substance check prior to the first payout of 2026, rather than after it.

Companies lacking a genuine presence on the island

The introduction of a place-of-incorporation residency test, the elimination of the 100% interest deduction on investments in subsidiaries (subject to a transitional rule until 2027 for investments made before December 31, 2025), and the lowering of the capital gains tax threshold for "real estate-rich" companies from 50% to 20%—all these measures shift Cyprus toward becoming a jurisdiction where actual presence is required, rather than one where a company merely exists on paper.
Add to this the tightening of administrative requirements: mandatory annual tax returns for all Cyprus tax residents over the age of 25; director liability extending beyond resignation for the duration of their tenure; the Tax Commissioner’s authority to suspend business operations following three written warnings; and a six-year document retention requirement starting from the filing date. Cyprus is no longer a place where a shell company can operate unnoticed for years. For those specifically seeking a light administrative burden, it would be wiser to compare Cyprus with Estonia, Georgia, the UAE, or Hong Kong, weighing not only tax rates but also requirements regarding physical presence and banking services.

What a Cyprus company owner should do in 2026

The reform does not require urgent action from most companies, but it does necessitate a one-time analysis—involving roughly 2–3 hours of document review. Decisions made at this stage will shape the company's strategy for years to come, and the cost of error increases with every year of delay.

Allocate retained earnings by year

This is the first step to take. Profits generated up to December 31, 2025, and those generated from January 1, 2026, are legally distinct categories subject to different distribution rates. Furthermore, profits from 2024 and 2025 are subject to transitional rules regarding "deemed distribution."
Experience shows that a careful breakdown yields better results than any attempt to optimize the tax rate. A payout schedule spread over several years—tailored to the beneficiary's personal needs—usually produces a better outcome than a single large lump-sum payment made in a rush to beat the 2031 deadline. There is no point in rushing to withdraw "old" profits at the 17% rate simply for the sake of speed; funds withdrawn prematurely often lose more value through lost turnover than they save on the tax rate.

Revise the reporting calendar

Shifting the corporate tax return deadline to January 31 of the second year following the reporting year means the standard year-end closing schedule is no longer viable. Auditors and accountants will need to receive source documents, bank statements, and confirmations regarding related-party transactions two months earlier than usual.
Companies with a turnover between €70,000 and €120,000 should check if they are now exempt from mandatory audits under the new threshold; this can result in savings of approximately €800 to €1,500 per year. Owners of Cyprus real estate must switch rental payments exceeding €500 per month to non-cash methods and amend their lease agreements accordingly.

When it makes sense to change jurisdiction

Changing your country of incorporation is justified not simply because a tax rate has risen by 2.5 percentage points, but when the logic of your corporate structure changes. There are three scenarios where relocation is seriously considered: a holding company in a jurisdiction from the "April list" sits above the Cyprus entity and the substance test cannot be met; the actual management is based in a country where tax authorities could claim tax residency, yet no applicable tax treaty exists; or the business has—and plans to have—no personnel, office, or operational expenses in Cyprus.
In all other cases, post-reform Cyprus remains a competitive EU location: it offers access to EU directives, an extensive network of tax treaties, no withholding tax on outbound dividends to non-residents, retained IP Box and Notional Interest Deduction (NID) regimes, and a flat 8% tax on income from crypto-assets. At IT-OFFSHORE, we specialize inCyprus company incorporation, obtaining CySEC and e-money licenses, and identifying alternatives if calculations show the island is no longer the right fit for your needs. Our analysis begins with your specific structure and figures rather than a generic rate comparison; our Moscow office can be reached at +7 495 001-22-29, and afull list of contacts is available here.