Cyprus Prepares for a Major Tax Overhaul
Starting January 1, 2026, Cyprus will implement one of the most significant tax reforms in its recent history. The upcoming changes are designed to modernize the tax system, align with international standards, and enhance transparency, while still maintaining Cyprus’s position as a competitive jurisdiction for businesses and expats.
Key Changes to Corporate Tax
The most notable shift is the increase of the corporate income tax rate from 12.5% to 15%. This adjustment brings Cyprus in line with global minimum tax requirements and applies to all companies with fiscal years starting in 2025 or later.
In addition, enhanced anti-avoidance measures are being introduced. These include stricter transfer pricing regulations, a new General Anti-Abuse Rule (GAAR), and limitations on transactions involving entities in low-tax jurisdictions. Companies are advised to review their group structures and cross-border arrangements in advance.
Personal Income Tax Updates
For individuals, the tax-free threshold is expected to rise from €19,500 to €20,500. The top personal income tax rate of 35% will now apply only to income exceeding €80,000 annually, rather than the previous €60,000 limit.
Special incentives remain in place for high-earning employees relocating to Cyprus. New residents who earn above €55,000 per year can claim a 50% income tax exemption for up to 17 years. Those earning between €20,000 and €55,000 can benefit from a 20% exemption for seven years.
Dividends, Capital Gains, and the Non-Dom Regime
Dividends paid to Cyprus tax residents will now be subject to a reduced 5% withholding tax, a decrease from the previous 17%. However, payments to or from entities in non-cooperative jurisdictions will face stricter rules and may be denied tax deductibility.
Cyprus remains attractive for non-domiciled residents, who continue to enjoy exemptions from dividend and interest taxation for 17 years. There are still no taxes on wealth, inheritance, or capital gains from assets located outside Cyprus.
What Businesses and Expats Should Do Now
Businesses operating in or through Cyprus should prepare early. It is essential to review profit allocation models, intercompany pricing, and compliance with substance requirements.
Expats planning relocation should explore eligibility for non-dom status and assess how the new rules affect salary planning, pensions, or dividends.
Legal and tax professionals expect the draft legislation to be finalized and passed by late 2025, giving stakeholders time to adapt before the rules take effect.
Cyprus’s new tax regime signals a new era: more transparent and internationally compliant, yet still welcoming for entrepreneurs, investors, and digital professionals.
