30.09.2025
CYPRUS TAX REFORM 2026: WHAT YOU NEED TO KNOW
Cyprus is preparing a major tax reform, expected to be voted on before the end of 2025. The Government aims to approve the measures in full this December, earlier than originally planned, to ensure they can take effect for the 2025 tax year.
The reform includes several key changes:
· Higher tax-free threshold and revised brackets: The personal tax-free threshold will rise to €20,500. Income tax brackets will also be adjusted.
· Corporate tax increase: The corporate income tax rate will go up from 12.5% to 15%. Most current deductions and exemptions will remain, except for interest and royalties paid to low-tax jurisdictions (LTJs), which will no longer be deductible from 1 January 2026. Benefits such as unilateral foreign tax credits, notional interest deductions, and dividend participation exemptions will continue.
Other corporate changes include:
· Taxation of profits from the sale of shares in real estate companies listed on the new CSE market.
· Executive salaries may be assessed by the Tax Department for taxation purposes starting in 2028.
· Closure of business premises for failing to issue receipts or pay taxes, following three written warnings with a 10-day compliance period each.
· Bonuses will be taxed at 20%, while the first €100,000 remains tax-free.
· Hidden dividend distributions will face a 10% tax.
· Special defence contribution on dividends will drop from 17% to 5%.
· Share pledges can be used to settle tax debts over €100,000.
· The non-domicile regime will be extended by 5+5 years for eligible non-Cypriot residents.
· Employee share incentive schemes will be taxed at 20% for benefits up to twice the annual salary, with a three-year minimum holding period and a lifetime cap of €500,000. This is an increase from the previous proposal of 8% tax on share option benefits.
· A new capital gains tax of 10% will apply to future gains on shares, bonds, ETFs, crypto-assets, and investment gold, with exemptions up to €15,000 and special provisions for significant shareholders. Historical gains until 31 December 2025 remain exempt.
Learn more The reform includes several key changes:
· Higher tax-free threshold and revised brackets: The personal tax-free threshold will rise to €20,500. Income tax brackets will also be adjusted.
· Corporate tax increase: The corporate income tax rate will go up from 12.5% to 15%. Most current deductions and exemptions will remain, except for interest and royalties paid to low-tax jurisdictions (LTJs), which will no longer be deductible from 1 January 2026. Benefits such as unilateral foreign tax credits, notional interest deductions, and dividend participation exemptions will continue.
Other corporate changes include:
· Taxation of profits from the sale of shares in real estate companies listed on the new CSE market.
· Executive salaries may be assessed by the Tax Department for taxation purposes starting in 2028.
· Closure of business premises for failing to issue receipts or pay taxes, following three written warnings with a 10-day compliance period each.
· Bonuses will be taxed at 20%, while the first €100,000 remains tax-free.
· Hidden dividend distributions will face a 10% tax.
· Special defence contribution on dividends will drop from 17% to 5%.
· Share pledges can be used to settle tax debts over €100,000.
· The non-domicile regime will be extended by 5+5 years for eligible non-Cypriot residents.
· Employee share incentive schemes will be taxed at 20% for benefits up to twice the annual salary, with a three-year minimum holding period and a lifetime cap of €500,000. This is an increase from the previous proposal of 8% tax on share option benefits.
· A new capital gains tax of 10% will apply to future gains on shares, bonds, ETFs, crypto-assets, and investment gold, with exemptions up to €15,000 and special provisions for significant shareholders. Historical gains until 31 December 2025 remain exempt.