The Cyprus Tax Reform 2026 is a key step forward to transform the Cyprus tax system in a way that reflects all dynamic changes in local and international environment. It provides generous individual tax benefits and lower tax burden benefiting a high taxpayer base.
All changes, positive or negative (increased corporate tax rate, new crypto tax), have been put to effect with specific objectives that overall benefit the entire taxpayer base. Especially taxation of rental income and dividends have been both rationalized and simplified.
The reform arms the Income tax Department with additional weapons to fight tax evasion maximizing the collection of the tax revenues.
Finally, the major characteristic of Cyprus as a tax attractive destination has remained unchanged.
CHANGES FOR INDIVIDUALS
A. individual and partnership tax declaration filing
The reform introduces new rules for filing a tax declaration. As from 1.1.2026, all Cyprus tax residents aged 25 and above must submit an annual income tax return.
All partnerships are obligated to file tax declarations. From July 2026, rent payments exceeding €500 must be made through traceable banking methods. The Tax Commissioner is also granted enhanced powers to address serious and repeated non-compliance.
In addition, the gross income threshold for mandatory submission of audited accounts by individuals is increased from €70,000 to €120,000. realities.
B. New tax brackets for individuals
Effective from 1 January 2026, the tax-free threshold for individuals increases to €22,000, together with revised tax brackets for taxable income. The following tax brackets are in effect from 1.1.2026.
- 0% tax on income up to €22,000
- 20% tax on income from €22,001 to €32,000
- 25% tax on income from €32,001 to €42,000
- 30% tax on income from €42,001 to €72,000
- 35% tax on income exceeding €72,001
Comparing it with the previous tax brackets, it benefits both low and high income taxpayers. The tax-free amount is increased from €19,500 to €22,000.
C. Family allowances
- Child allowance: A child allowance is granted per spouse or cohabitee, with increasing amounts for the first, second, and subsequent dependent children. Students up to the age of 24 qualify as dependent children, to provide a tax relief to families which finance their children education.
- Home equity interest deduction: Interest on a serviced loan is tax deductible of up to €2,000 per spouse or cohabitee to acquire a primary residence or rent paid for a primary residence.
- Green transition deduction: A new tax deduction for green transition is introduced of up to €1,000 per spouse or cohabitee applies to expenditure on energy upgrading of a primary residence. It also applies to the purchase of a new electric vehicle.
- Home insurance deduction: A deduction of up to €500 per spouse or cohabitee is provided to insurance covering natural disasters.
D. Abolition of deemed dividend distribution
The deemed dividend distribution on profits earned earned after 1 January 2026 is abolished. The deemed distribution was a negative factor affecting profit reinvestment into the business or retained as additional working capital for the operations.
Under the new tax reform, all business profits after 1.1.2026 are not subject to deemed distribution. As from 1.1.2026 they are taxed upon actual distribution for domiciled shareholders. For actual dividends distributed out of post-2026 profits, the Special Contribution for Defence Tax rate is reduced from 17% to 5%.
Under the current and forthcoming Cyprus tax reform (effective from January 1, 2026), qualifying individuals with a “non-domicile” (non-domicile) status pay a 0% tax rate on all dividend income.
It is very important to note that the abolition of the deemed distribution is rectified by the rules addressing concealed dividends. In cases where company value (in different forms) is transferred to shareholders or connected persons in a manner that, in substance, represents a distribution of profits, a 10% Special Contribution for Defence may apply. That is why it is crucial that all company-shareholder transactions must be properly and fully documented and justified.
E. Dividends to companies resident at low tax jurisdictions
Dividends paid to companies registered and resident in tax heavens , or low-tax will be taxed at the level of 5%. (tax withholding mechanism).
F. Capital deduction benefit for the agricultural/livestock sector
A higher 20% capital allowance is provided to local farmers and livestock-producing professionals for the purchase of special machinery and installations. The capital allowance is provided after subtracting any applicable subsidies.
G. Abolition of Special Contribution for Defence on rental Income from immovable property
The 3% Special Contribution for defence on rental income is abolished. Rental income as from 1.1.2026 is tax only under income tax rules.
In addition, from July 2026, rent payments exceeding €500 must be made through banking institutions.
H. Interest & dividend investment income
The Special Contribution for Defence withholding tax rate on interest from government securities of another EU Member State and on deposits of the Health Insurance Fund is reduced to 3%.
In addition, as from 1.1.2026, the payment of Special Contribution on Defence tax on income from dividends and interest received from abroad to the filing of the income tax return. the previous system of two-instalment system with a one payment is abolished facilitating investors with overseas investment income.
I. Non-dom alternative for extended long stay
For non-domiciled individuals who have completed 17 years of Cyprus tax residency, the new tax reform introduces an alternate tax option. It provides conitunation of two consecutive five years of the same tax scheme, provided a lump sum payment is effected for each period.
CHANGES FOR BUSINESSES
A. Increased corporate income tax rate
Corporate income tax rate is increased to 15%. Although this sounds like “bad news”, it actually helps get Cyprus off any low tax list of EU Member states. It will help make business from Cyprus more reputable when countries like Germany for example tighten rules on invoices from low-tax jurisdictions.
B. Research & Development
There is an extension until 2023 of the 120% super-deduction for qualifying R&D expenditure on intangible assets. This is increase the tax benefit and to boost innovation and promote local tech development. The benefit is also crucial for large capital projects.
C. Entertainment expenses
The maximum deductible entertainment expenses increase to €30,000.
D. Crypto & employee sharing
Gains on sale of Crypto assets will be taxed at the rate of 8% under the new tax reform. Losses incurred at the same year are deductible. Gains arising from employee sharing schemes are also taxed at 8%.
M. Losses carry-forward
The period of loss carry-forward benefit for profitable businesses is extended from five to seven years. This is particularly beneficial to companies with longer business cycles. It is also quite beneficial for start-up businesses.
N. Stamp duty abolished
Stamp duty on most contracts, share transfers, and loan agreements is abolished, reducing transaction costs incurring high cost benefit especially in the property development industry.
CAPITAL GAINS TAX CHANGES
The following changes will be in effect from 1.1.2026 under the new tax reform:
- Capital Gains Tax exemption: It is increased from €17,086 to €30,000, applying to qualifying sales.
- Agricultural land exemption: It is increased from €25,629 to €50,000.
- Primary residence exemption: The lifetime exemption for the disposal of a primary residence is increased from €85,430 to €150,000.
The above comprise important tax benefits and enhance household mobility in investment decision-making.
WHAT REMAINS THE SAME
A. Non dom scheme & tax residency
The non-dom scheme for foreign individuals remains the same to continue providing the tax benefits and boost foreign investment in the island. the 60-day and the 183-day rules remain the same for tax residency.
B. Tax-free sales of securities
There is no capital gains tax on sale of marketable securities. The tax benefit remains the same.
C. Notional interest deduction (NID)
The Notional Interest Deduction remains available and continues to support equity-funded businesses maximizing tax benefis.
D. Exception of 50% on employment income
The 50% employment income exemption for qualifying new employees moving to Cyprus from abroad is still available under the new tax reform. It benefits professionals moving to Cyprus from overseas.
E. Cyprus Holding Companies
The Cyprus holding company structure remains the same ensuring that the qualified dividends and capital gains are except. Cyprus holding companies enjoy all the tax benefits referred to above.
F. IP Box Regime
The attractive “IP Box” regime remains, allowing an effective tax rate as low as 2.5% on qualifying intellectual property income.
Please also visit our FAQ for additional information on accounting and tax matters.
How Cyprus Tax Accounting Can Help
At Cyprus Tax Accounting, we provide expert guidance on:
- Navigating the 2026 tax reform and answering questions
- Providing clear tax advice under the new tax rules
- Maximizing individual and corporate tax benefits
- Providing non-dom tax certificates under 60-day or 183-day rules
Our professional experience in accounting and tax advice is here to help you make informed decisions and stay compliant in a changing regulatory landscape.
Contact Us
For personalized advice and strategic planning, reach out to Cyprus Tax Accounting today.
