Proposed Cyprus Tax Reform 2026 – Key Changes Affecting Companies (November 2025)
The Cyprus Government has announced a comprehensive tax reform package, introducing significant amendments to the Income Tax Law, the Special Defence Contribution (SDC) Law, and the Tax Administration framework. The reforms aim to modernise the tax system, enhance compliance, combat aggressive tax planning, and align Cyprus with international standards.
The reforms, which were approved by the Council of Ministers and submitted to Parliament in late October 2025, are expected to take effect primarily from January 1, 2026 (with some provisions delayed to 2031), pending final parliamentary approval and publication in the official gazette.
At the time of publishing this article the tax reform has not been approved yet by the parliament.
Below is an overview of the major proposed changes relevant to companies and corporate taxpayers.
1. Increase of the Corporate Income Tax Rate
The corporate income tax rate will increase from 12.5% to 15%, marking the first adjustment in over a decade. This change aligns Cyprus with global tax developments and the broader international move towards minimum corporate tax rates.
2. Changes to Compliance Deadlines and Tax Administration
- New Filing Deadline for Companies
Corporate tax returns will be due on 31 January of the second year following the tax year
(e.g., 2026 return due by 31 January 2028).
The same deadline applies for payment of the corporate tax liability. - Mandatory Employer Declarations
Employers must file an employer’s return for every employee, regardless of income level. - Record-Keeping Extended to 8 Years
Companies must retain all tax-related documentation for eight years from the filing date.
The Tax Commissioner may request a statement of assets and liabilities covering the same period. - Expanded Powers of the Tax Department
Authorities may request tax information without limitation by banking or professional confidentiality. - Business Suspension for Serious Non-Compliance
After three written warnings, the Tax Department may suspend operations and seal premises where businesses fail to comply, issue inaccurate invoices, or obstruct audits.
3. Key Amendments to Corporate Tax Rules
Cryptoasset Disposals
Gains from the disposal of cryptoassets will be taxed at a flat 8%, losses offset only against same-year crypto gains (no carry-forward or offset against other income). Applies to sales, exchanges, donations, or use as payment. Mining profits exempt under general rules.
Extended Loss Carry-Forward
Companies may now carry forward tax losses for 7 years (increased from 5).
R&D Super-Deduction
The 120% enhanced deduction for qualifying R&D expenditure relating to intangible assets is extended to 2030, continuing Cyprus’ support for innovation.
Stock Option Taxation
Employee benefits from approved stock option schemes will be taxed at 8%, subject to:
- A cap of twice the employee’s annual remuneration, and
- A maximum lifetime benefit of €1 million over 10 years.
Entertainment Expense Deduction
The deductible limit for entertainment expenses increases from €17,086 to €30,000.
Listing Incentives
Deduction of up to €300,000 allowed for first-time listing costs on a recognised stock exchange, with unused amounts carried forward for up to 3 years under De Minimis rules.
Transfer Pricing – Higher Documentation Thresholds
Taxpayers are exempt from preparing a Cyprus Local File if annual controlled transactions do not exceed:
- €10 million for financing transactions
- €5 million for goods
- €2.5 million for services or other transactions
Interest Deduction for Subsidiary Acquisition Abolished
Interest expense deductions for acquiring 100% subsidiaries will be abolished for investments made after 31 December 2025, with transitional arrangements to 2027.
No deduction applies if the subsidiary is located in a non-cooperative jurisdiction.
Permanent Establishments
Profits from PEs in non-cooperative jurisdictions will no longer be tax-exempt.
4. Major Reform of the Special Defence Contribution (SDC)
Abolition of Deemed Dividend Distribution (DDD)
The long-standing deemed dividend distribution mechanism is abolished for profits earned from 1 January 2026 onwards.
SDC on Actual Dividends Reduced
SDC on actual dividends decreases dramatically from 17% to 5% for profits generated after 1 January 2026.
SDC on Rental Income Abolished
5% Withholding Tax on Dividends to Low-Tax Jurisdictions
A 5% withholding tax applies to dividends paid to companies resident in low-tax jurisdictions.
SDC on Interest Income Adjusted to 3% for:
- Interest from EU government bonds
- Interest of public-benefit organisations
- Bonds listed on the Emerging Market of the Cyprus Stock Exchange
Anti-Avoidance Measures
- Hidden (disguised) dividend distributions subject to 10% SDC
- Capitalisation of reserves treated as a dividend
- From 2031, profits distributed on redemption of investment fund units treated as dividends for SDC purposes
5. Strengthened Anti-Avoidance Framework
The reform package introduces several new provisions targeting aggressive tax planning:
- Legal persons incorporated in Cyprus are automatically treated as Cyprus tax residents.
- General anti-abuse rules expanded across the tax framework.
- Tightened rules for transactions with non-cooperative jurisdictions.
- Increased penalties to encourage voluntary compliance.
Conclusion
The Cyprus tax reform represents one of the most significant updates to the corporate tax framework in recent years. With the increase in corporate tax, the abolition of deemed dividend distribution, major changes to SDC, and strengthened compliance obligations, businesses operating in Cyprus will need to carefully reassess their tax position and prepare early for the upcoming changes.
It’s crucial to note that these are still proposals (draft bills) awaiting final approval and enactment by the Parliament, which can still lead to amendments.
Our firm will continue monitoring legislative developments and can assist your business with tax planning, compliance, and impact assessment under the new regime.