Cyprus Tax Reform (Effective January 1st)

Following the passing of the relevant bills by the Plenary of the House of Representatives on December 22, 2025, we would like to inform you that the comprehensive Tax Reform has been published in the Official Gazette of the Republic.

The new regulations enter into force as of January 1, 2026, unless explicitly stated otherwise.

Key Developments

Corporation and Income Tax

Corporate Income Tax (CIT)

• Increased from 12,5% to 15%

• The period for carrying forward tax losses has been extended from 5 to 7 years.

The definition of a Cyprus tax resident company now includes companies which have been incorporated under the Cyprus Companies Law, irrespective of whether another country also considers them as tax resident in that country (except for companies deemed as tax residents of another country by reference to an applicable double tax treaty).

Crypto Assets Taxation

Gains arising from the following transactions:

• the sale of crypto assets

• gifting of crypto assets

• exchange of one crypto asset for another crypto asset

• the use of crypto assets as a means of payments

are subject to a flat 8% income tax rate for both companies and individuals.

This special tax regime does not apply to gains from crypto assets acquired through mining activities.

Any losses arising from crypto assets may be offset only against gains from other crypto assets belonging to the same person in the same tax year and cannot be carried forward or offset through group relief.

Transfer Pricing Thresholds

• Financing Transactions: €10,000,000

• Goods: €5,000,000

• All Other Transactions: €2,500,000

Share Based Payments

Benefits received by employees or directors of a company in the form of share options or rights to acquire shares (“Rights”) are subject to a flat tax rate of 8%.

The 8% rate applies only to the portion of the benefit that does not exceed an amount which is equal to two times the employee’s or director’s annual employment remuneration (excluding the benefit itself) in the year of vesting. Any benefit exceeding this threshold is subject to the general tax rates applicable to other types of income.

Conditions:

• Minimum vesting period of three years

• Non-transferable

• Relate to shares of the company/employer or related holding company

• Same rights as ordinary shares (except voting rights)

• Minimum strike price ≥ 50% of share value at approval

The total benefit subject to the 8% rate cannot exceed €1,000,000 over a ten-year period of employment.

The 8% flat rate does not apply if the Rights are granted to a related party under Article 33.

Investment Schemes (Effective 1/1/2031)

Gains of individuals from redemption of units/shares in collective investment schemes will be treated as dividends and taxed accordingly.

Employment Income

Includes:

• Benefits provided as incentive before employment

• Ex gratia payments related to retirement or termination

• Early retirement scheme benefits

• Compensation not included in employment terms

• Court settlements

Any amount exceeding €200,000 is taxed at 20% (not deductible for employer)

Additional Tax Provisions

• Intangible Assets: Amortization up to 20 years

• Entertainment Expenses: Up to €30,000 (max 1% of gross income)

• R&D Super Deduction: 20% (2025–2030)

• Interest Deduction Restriction: Continues beyond 7 years

• COLA Deduction: 200% deduction under conditions

Personal Tax Deductions

For Families

• €1,000 – €2,000 per child per parent

• Income thresholds:

  • €100,000 (1–2 children)

  • €150,000 (3–4 children)

  • €200,000 (5+ children)

For Single Persons (< €40,000)

• 1st child: €1,000

• 2nd child: €1,250

• 3rd+: €1,500

Additional Allowances

• Housing loan interest: up to €2,000

• Rent: up to €1,500

• Insurance (natural disasters): €500

• Energy efficiency: €1,000 per household member

60-Day Rule

The condition of not being a tax resident in another state has been removed.

Personal Income Tax Brackets

Income (€)	Tax Rate	Accumulated Tax (€)
0 – 22.000	0%	Tax Free
22.001 – 32.000	20%	2.000
32.001 – 42.000	25%	4.500
42.001 – 72.000	30%	13.000
72.001+	35%

Additional Notes

• Group relief requires use of own losses first

• Interest (individuals): SDC only, no income tax

• Interest (companies): Corporation tax only

Stamp Duty

The stamp duty law has been abolished.

Collection of Taxes

The Commissioner may pledge shares of taxpayers with liabilities exceeding €100,000.

Special Contribution for Defence (SDC)

• Dividends reduced from 17% → 5%

• Pre-2026 profits remain at 17%

• Rental SDC abolished

• DDD abolished for post-2026 profits

Interest Income

• Individuals: Only SDC (17% or 3%)

• Companies: No SDC (with exceptions)

Expanded Dividend Definition

Includes:

• Capital reduction

• Dissolution

• Liquidation

• Share redemption (from 2031)

Disguised Dividends (10%)

Applies to:

• Private use of company assets

• Below-market asset transfers

No refunds allowed.

Capital Gains

• Property threshold reduced from 50% → 20%

• Exemptions increased:

  • General: €30,000

  • Agricultural: €50,000

  • Primary residence: €150,000

Additional Changes

• New exemption up to €50,000 for certain shares

• Exchange of land/buildings now exempt under conditions

Other Amendments

• Rent must be paid electronically

• Mandatory tax return filing (age 25–71 regardless of income)

• Directors remain liable after resignation

Record Keeping

• Records must be kept for 6 years

• Extended if audit begins

Filing Deadlines

• 31 January (13 months after tax year end)

Audit Threshold

• Increased from €70,000 → €120,000

Partnerships

All partners must submit returns showing their share of income.