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How Cyprus’s Tax Regime Became One of the EU’s Most Competitive

Cyprus has emerged as a compelling destination for businesses and expats seeking an optimised tax environment within the European Union. With its strategic location, English-based legal framework and transparent corporate regime, Cyprus delivers genuine benefits but only when utilised sensibly and in compliance with evolving regulations.

1. Low Corporate Tax, High Efficiency

At the core of Cyprus’s appeal is its 12.5 % corporate tax rate, one of the lowest in the EU. This flat rate applies to a company’s worldwide profits if it meets the tax residency test, including if it is both registered and effectively managed in Cyprus. Under new proposals set for 2026, this rate may rise to 15 %, though offsetting measures such as enhanced deductions are also being considered .

2. Withholding Tax Exemptions

Cyprus stands out by imposing no withholding tax on dividends, interest and royalties paid to non-residents subject to treaty terms. For Cyprus tax residents who are non-domiciled, Special Defence Contributions (SDC) on dividends and interest may be zero. This makes Cyprus highly effective as a holding company hub where profits can be moved across borders efficiently.

3. Intellectual Property (IP) Box Regime

The country’s IP Box applies to qualifying Intellectual Property (patents, software, research‑derived intangible assets), enabling an effective tax rate as low as 2.5 %. This regime adheres to the OECD BEPS “nexus” rules and offers an 80 % notional interest deduction on new equity used to fund IP.

4. Non-Domicile Benefits for Expats

Cyprus allows eligible expats to claim non-domicile status, exempting them from SDC on foreign dividends and bank interest for up to 17 years . Coupled with a €19,500 personal income tax allowance, this structure makes Cyprus a highly attractive destination for high-net-worth individuals.

5. Double Tax Treaties

Cyprus has signed over 65 double taxation treaties (e.g. with the UK, Germany, India, Russia). These treaties reduce withholding taxes and clarity on cross-border tax liabilities, providing international firms with certainty and structure.

6. Upcoming Reform – Balancing Attractiveness with Compliance

Cyprus is implementing reforms (“anti-abuse” rules) as part of the OECD Pillar Two regime. This includes:

  • Raising corporate tax to 15%.
  • Introducing a 5 % dividend withholding tax on Cyprus-dom tax-residents.
  • Strengthening economic substance requirements.
  • Enhancing allowances for green and digital business expenses.

These changes are expected to take effect from 1 January 2026.

Conclusion

Cyprus offers a robust, transparent tax regime grounded in EU compliance and tailored to modern business needs, offering low corporate taxes, strategic savings opportunities and the infrastructure to support international operations. However, the evolving regulatory landscape means expert local advice is essential to leverage benefits correctly and stay anticipatory of changes.