Cyprus Tax Reform: What Changes Await Businesses in 2026

The Cyprus Parliament has approved a major tax reform, the likes of which the country has not seen in over two decades. A package of six bills was passed by a majority vote at a session on December 22 and fundamentally changes the tax rules for individuals and businesses. The new regulations will come into effect on January 1, 2026.

Thirty-six members of parliament voted in favor of the reform, while 15 voted against. Only the capital gains tax bill received unanimous support; the remaining initiatives were approved, taking into account amendments from the relevant parliamentary committee. At the same time, separate laws were passed abolishing stamp duty and regulating international trusts.

Key Areas of Tax Changes

The reform is based on a comprehensive overhaul of the income tax system. For individuals, the tax-exempt minimum is significantly increased to €22,000 per year. The tax rate scale is expanded, and new tax deductions for families are introduced. These cover expenses on purchasing and renting a home, energy-efficient property upgrades, and the purchase of electric vehicles.

The corporate sector is expected to see an increase in the corporate income tax rate from 12.5% ​​to 15%. This step is aimed at bringing the Cypriot tax system into line with international standards and the requirements of the global minimum tax rate.

A separate section of the reform is devoted to the special defense tax. Specifically, the taxation of deemed dividends on profits earned after 2026 is abolished, the rate for actually paid dividends is reduced, the rental income tax is abolished, and additional measures are introduced to combat disguised profit distribution practices.

The rules for taxing interest income, dividends, and non-resident receipts are also being updated.

New Administration and Control Rules

Lawmakers have placed significant emphasis on strengthening tax administration. Filing tax returns is now mandatory for most individuals and legal entities. Accounting records are being retained for longer periods, and the powers of tax authorities in terms of audits and debt collection are being expanded.

For the first time, mechanisms for temporarily blocking assets and corporate rights in cases of large tax debts are being introduced, which should improve tax collection and taxpayer discipline.

What will change for companies?

For businesses operating in Cyprus—both local and foreign—the reform brings not only an increased tax burden but also a number of significant concessions and incentives:

• Abolition of the deemed dividend distribution on profits after January 1, 2026;
• Reduction of the defense contribution on dividends from 17% to 5%;
• Complete abolition of the defense contribution on rental income;
• Increase of the tax loss carryforward period from 5 to 7 years;
• Extension of the 120% excess deduction for R&D expenses until 2030;
• Introduction of a preferential rate of 8% on income from the sale of crypto assets;
• A fixed rate of 8% on approved employee stock option plans;
• Increasing the limit on deductible entertainment expenses to €30,000 per year.

Additionally, pension funds are completely exempt from taxation on investment activities—a corresponding amendment supported by all parliamentary factions.

Strengthening the fight against tax evasion

One of the central elements of the reform was tightening tax control measures. Key innovations include:

• Mandatory cashless payments for rent over €500 (from July 2026);
• Mandatory filing of tax returns for all citizens over 25;
• The tax commissioner's right to request information on assets and liabilities for the past six years;
• Expanded access of tax authorities to bank data;
• The possibility of temporary closure of businesses for tax violations;
• Freezing of company shares for tax arrears exceeding €100,000.

It's especially worth noting the complete abolition of stamp duty, which will reduce the administrative burden and costs for both companies and individuals.

The new tax reform radically changes the rules of the game for businesses in Cyprus, combining increased transparency and control with a system of incentives for investment, innovation, and long-term development.

IT-OFFSHORE will help you navigate the new legislation, assess the impact of the changes on your business, and develop an effective tax strategy taking the reform into account.