Cyprus approved a comprehensive tax reform package on 22 December 2025, marking the first major overhaul of the tax system in more than twenty years. The new framework aims to strengthen Cyprus’ competitiveness as an international business centre while providing targeted relief to individuals and families.
Most measures will apply from 1 January 2026.
This article outlines the main changes affecting companies, individuals, and tax compliance.
Corporate Tax Changes in Cyprus
Corporate Income Tax Increase
The corporate income tax rate will increase from 12.5% to 15% as from 1 January 2026.
This change aligns Cyprus with OECD global minimum tax rules applicable to multinational groups.
Special Defence Contribution (SDC) Amendments
Significant changes apply to SDC:
- SDC on dividends reduced from 17% to 5%
- SDC on rental income abolished
- SDC on deemed dividend distribution abolished for profits earned after 2026
These measures reduce taxation on profit distribution and investment income.
Stamp Duty Abolition
Stamp duty is abolished for most transactions, subject to specific statutory exceptions, excluding:
- Real estate contracts
- Banking agreements
- Insurance contracts
This reform reduces transactional costs for businesses and individuals.
Cryptocurrency and Share-Based Remuneration
The new framework introduces a flat 8% tax on:
- Cryptocurrency gains
- Gains arising from approved stock option under employer schemes
Business Losses, R&D and Expenses
Additional business incentives include:
- Extension of loss carry-forward from 5 to 7 years
- Extension of the 120% R&D super-deduction until 2030
- Increase of the entertainment expense deduction cap to €30,000 (from €17,086)
Personal Income Tax Changes
Increase in Tax-Free Threshold
The personal income tax-free threshold increases from €19,500 to €22,000, providing relief to low and middle-income earners.
New Personal Income Tax Brackets
From 2026, personal income tax will apply as follows:
- 20% on income from €22,001 to €32,000
- 25% on income from €32,001 to €42,000
- 30% on income from €42,001 to €72,000
- 35% on income above €72,001
New Personal Tax Reliefs and Deductions
Child and Student Deductions
New deductions apply for dependent children or students up to the age of 24:
- €1,000 for the first child
- €1,250 for the second child
- €1,500 for the third and each additional child
Eligibility depends on total household income:
- Up to €100,000 for 1–2 children
- Up to €150,000 for 3–4 children
- Up to €200,000 for 5 or more children
Housing, Green and Resilience Incentives
The reform introduces deductions for:
- Loan interest and rent, up to €2,000
- Green investments, including electric vehicle purchases, up to €1,000
- Home insurance against natural disasters, up to €500
Severance Payments
Severance payments paid due to employment termination will be taxed at 20%, with a €200,000 tax-free allowance.
Capital Gains Tax
Capital gains tax-free thresholds have been increased, providing relief on qualifying disposals.
Anti-Evasion Measures and Compliance Obligations
Mandatory Tax Return Filing
All individuals aged 25 and over will be required to submit annual income tax returns
Electronic Rent Payments
Rent payments exceeding €500 will be required to be made electronically, with implementation expected from 1 July 2026.
Expanded Enforcement Powers
The Tax Commissioner is granted enhanced authority, including:
- Requests for asset and liability statements covering up to six years
- Access to banking records from Cyprus-based banks
- Power to seal businesses for serious non-compliance
- Ability to freeze shares for tax debts exceeding €100,000
Affected taxpayers retain the right to challenge enforcement actions through the courts.
How Michael Chambers & Co. LLC Can Assist
The Cyprus tax reform introduces new planning opportunities alongside increased compliance obligations. At Michael Chambers & Co. LLC, our legal and accounting teams provide:
- Corporate and international tax advisory
- Personal tax planning and compliance
- Support with dividend taxation, SDC, and investment income
- Assistance with audits, investigations, and tax disputes
For advice on how the new tax framework affects you or your business, our professionals are available to assist.
Further guidance is expected to clarify how certain measures will work in practice, including detailed thresholds, eligibility conditions, and reporting requirements.
