The Cyprus government has introduced a wide-ranging tax reform, with key provisions taking effect from 1 January 2026. The reform covers personal income, corporate tax, capital gains, crypto-assets, special defense contributions (SDC), and enforcement measures, aiming to modernize the tax system, broaden the tax base, and strengthen compliance. 

This tax reform is been presented to the parliament for voting. At the time of publishing this article the tax reform has not been approved yet by the parliament.

 

We consider the key changes of the bill to be the following:

• Increase of Corporate tax to 15% from 12.5%,
• Cancellation of deemed dividend tax,
• Reduction of dividend tax to 5% from 17%,
• The introduction of a flat 8% tax on cryptocurrency profits,
• Revisions of the capital gains tax regime, covering property swaps which are now tax free from 20%,
• Increase of personal tax-free thresholds for salary income subject to conditions and income thresholds
• New powers vested to the Income Tax Commissionaire with regards the collection of taxes due.
• The powers of the Tax Department are strengthened to request tax information regardless of banking or professional confidentiality.

 

                      INDEX

1. Personal Income Tax
2. Corporate Tax
3. Crypto Currency Tax
4. Special Defence Contribution
5. Capital Gains Tax
6. Summarised Personal & Corporate Taxes
7. Enforcement and compliance measures
8. Key dates and commencement
9. Summary

 

1. Personal Income Tax

We summarise below the revised tax scales for salaries calculation of Pay As You Earn (PAYE).

2026 Suggested Taxable Income (Annual)	Tax Rate
Up to €20,500	0%
€20,501 – €30,000	20%
€30,001 – €40,000	25%
€40,001 – €80,000	30%
Over €80,000	35%

 

Allowances and Deductions

• Family-based allowances:

For the purposes of calculating the taxable income of an individual who is a resident of the Republic, the following allowances shall be granted, provided that the family income does not exceed €80,000, or €100,000 in the case where the dependent children, including dependent children who are students, are more than three (3), or €40,000 in the case of a single individual.

• Dependent children allowance: €1,000 per child (€2,000 for single-parent families).
• Student allowance: €1,000 per dependent student.
• Mortgage/rent interest: up to €1,500 for primary residence.
• Energy upgrades or new electric vehicle purchase: up to €1,000.
• Insurance premiums: permanent/partial disability and housing insurance up to €500.
• Capital expenditure deduction: For expenses 2025–2030, including capital expenditures under paragraph (l), an additional 20% deduction is allowed; may be waived in part or in full.

 

Conditions for Allowances

• Tax returns for spouses, civil partners, or single individuals must be filed on time.
• Consent required for mutual disclosure of tax information between spouses or civil partners.
• Definitions:
  • Dependent children, single-parent family, family income, student — per Child Benefit Law.
  • Single individual — lives alone, not married or in civil partnership, not cohabiting with adults or dependents.
  • Civil partners — as per Civil Partnership Law.

 

Other Provisions Affecting Individuals

Employee Bonuses and Gifts

Income exceeding €200,000 under specific subparagraphs of Article 5 is taxed at 20%.

Sole Traders

The threshold for mandatory submission of audited accounts by an individual increases from €70,000 to €120,000 of gross income.

 

Various Amendments

• Provisions for serving notifications to taxpayers are modernized, ensuring delivery by secure methods.
• The deadline for submission of corporate tax returns is moved to January 31 of the second year following the tax year, and this date will also apply for the payment of corporate tax.
• Submission of tax returns becomes mandatory for all individuals who are residents of the Republic aged 25 and above, regardless of whether they have taxable income, in order to broaden the tax base and increase tax revenue.
• Mandatory submission of tax returns is introduced for cooperatives.
• In the case of a cooperative that is an investment fund, the tax return must be submitted by the fund manager.
• The deadline for filing appeals to the Tax Commissioner is extended to 60 days.
• The Tax Commissioner is granted the authority to request a statement of assets and liabilities covering a period of eight (8) years, and taxpayers are required to keep supporting documents for their tax returns for eight (8) years after the actual submission date.
• Employers are obliged to submit employee declarations for all employees, regardless of income level.
• The powers of the Tax Department are strengthened to request tax information regardless of banking or professional confidentiality.
• The law introduces the ability to suspend business operations and seal business premises after a relevant decision by the Tax Commissioner, following three prior written warnings, in cases where a person operating the business repeatedly violates tax obligations, fails to issue or issues incorrect invoices/receipts, or obstructs a tax audit.
• Administrative fines and monetary penalties are amended to encourage voluntary compliance.

 

2. Corporate Tax

The introduction of a Flat 15% corporate tax on taxable income from 12.5% that applies to all companies established or registered in Cyprus, effective 1 January 2026.

 

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3. Cryptocurrency Tax (Article 20E)

The new tax bill has specific reference to Cryptocurrency Tax (article 20E) which does not distinguish between physical or legal person. Therefore, it is stipulated that the tax rate for both individuals and corporates is at 8% subject to conditions as indicated below:

Category	Provision
Tax rate	8% flat on profits from disposal of crypto-assets
Losses	Can only offset crypto gains within same year; cannot carry forward or offset other income
Disposal definition	Sale, donation, exchange, or payment with crypto-assets
Mining exception	Profits from mined crypto are tax-exempt under general income tax
Fallback	Profits outside this article taxed under normal provisions (Parts III & V)
Definition reference	EU Regulation 2023/1114 (MiCA)

1. Profits of any person arising from the disposal of crypto-assets shall be subject to taxation at a rate of eight percent (8%).
2. Notwithstanding the provisions of Article 13, any losses arising from the disposal of crypto-assets may only be offset against profits from the disposal of crypto-assets realized within the same tax year. Such losses cannot be carried forward to subsequent years or offset against profits of future years of the same person. The provisions of subsections (4) to (11) of Article 13 shall not apply.
3. For the purposes of this Article:
   (a) The term "crypto-assets" shall be interpreted according to paragraph 5 of subsection 1 of Article 3 of Regulation (EU) 2023/1114, whose market value is essentially represented and derived from the market value of crypto-assets. (b) The term "disposal of crypto-assets" means the sale of crypto-assets, the donation of crypto-assets, the exchange of one crypto-asset for another, and the use of a crypto-asset as a means of payment.
4. The provisions of this Article shall not apply in cases where the crypto-assets disposed of were acquired through mining activities.
5. Any profit arising from crypto-asset transactions that does not fall within the provisions of this Article shall be taxed according to Parts III and V of this Law.

 

      Frequently Asked Questions

• What will the Cyprus Crypto Tax Rate be as of 2016?
  Profits from selling, donating, exchanging, or spending cryptocurrency will be taxed at a flat 8% rate.
• How can previous or future losses can be used?
  Crypto losses can only offset crypto gains within the same tax year. They cannot be carried forward or used against other types of income.
• What is the definition of Crypto Assets?
  “Crypto-assets” are defined as per EU Regulation 2023/1114 (MiCA) — essentially, digital assets whose value comes from their market value.
• What counts as a “disposal”:
  Selling crypto, giving it away, swapping it for another crypto, or using it to pay for goods/services all count as “disposals” that trigger tax.
• I am a miner. How will I get taxed?

This special crypto tax does not apply to crypto obtained through mining — those profits are taxed under the general income tax rules instead.

• Fallback rule:
  Any crypto-related profit not covered by this article is taxed under the normal provisions of Cypriot tax law (Parts III & V).

 

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4. Special Defense Contribution (SDC)

Category	Change
Dividends	Deemed distribution abolished; actual dividends taxed at 5% (previously 17%)
Rental income	SDC abolished
Withholding to low-tax jurisdictions	5% SDC on dividends
Interest (government/charities/etc.)	Reduced to 3%
Non-domicile alternative	€50,000/year lump sum for 5 consecutive years, may opt for up to two 5-year periods
Collective Investment Schemes	From 1/1/2031, redemption gains treated as dividends for SDC purposes
Anti-avoidance	10% SDC on disguised dividends; profit capitalization treated as dividends; general anti-abuse rules
Fines / penalties	Adjusted to encourage voluntary compliance

 

Non-Domiciled Persons

An alternative taxation method is introduced for non-domiciled individuals (Section 3D) who have completed 17 years of residence in Cyprus, allowing them to opt for a five-year (renewable for another five years) tax period by paying a lump-sum amount of €250,000 covering the entire five-year period.

Who it applies to:

Individuals without domicile in Cyprus who are considered to have acquired domicile in Cyprus may opt for an alternative lump-sum taxation method, paying a fixed annual special defense contribution of €50,000, regardless of their income.

 

Binding period:

The choice is irrevocable and binding for a period of five consecutive tax years.

 

Application process:

The individual must submit an application on a designated form by June 30 of the first year of the five-year period, and it must be accepted by the Tax Commissioner.

 

Payment: 

The contribution is payable in one lump sum of €250,000, covering all five years, by the end of the month following acceptance of the application. If not paid on time, the alternative method does not apply, and the individual is taxed under normal rules based on income.

 

Other rules:

The lump-sum contribution cannot be offset against other taxes or credits.

Payment fully satisfies all obligations for the five-year period.

Payments are non-refundable, and no foreign tax credits apply.

 

Renewal:

An individual may opt for this alternative method for up to two five-year periods.

 

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5. Capital Gains Tax (CGT) Amendments

One of the most important Capital Gains Tax (CGT) Amendments for the majority of Cypriots is the abolition of tax when a property owner (physical or legal person) exchanges their property to a developer or equivalent for further construction arrangements. This will help many Cypriot trapped property owners develop their assets and off course it will help the economy and tax funds.

What is Antiparochi?

As defined by the bill; “It is further provided that, for the purposes of this paragraph, the term ‘exchange’ also includes a ‘property-in-exchange arrangement’ (antiparochi), where ‘antiparochi’ means an agreement under which the owner of a plot of land transfers part of it to a contractor for the construction of a building thereon, in return for granting the owner, after the construction, ownership rights over certain units or parts of the building constructed on the portion of the land transferred to the contractor and on the portion of the land that remains in the ownership of the owner, provided that the construction of the said units or parts, as specified in the agreement, is completed within five years from the date of the agreement.”

Category	Change
Property exchanges / antiparochi	Exemption applies to property received in exchange for construction arrangements (antiparochi)
Definition of immovable property	Shares where ≥20% of value indirectly from Cyprus property subject to CGT (down from 50%)
CGT rate	20% on taxable gains (unchanged)
CIS redemption gains	From 1/1/2031, treated as dividend for SDC purposes
Administrative powers	Tax Commissioner may refuse property transfer if parties non-compliant
Compliance fines / penalties	Adjusted to encourage voluntary compliance

 

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6. Summarised Personal & Corporate Taxes

Key Measures “Income Tax Laws of 2002 to (No.2) of 2025”:

Category	Amendment / Change	Effective Date / Notes
Individual Tax Rates	Personal income tax brackets revised; tax-free threshold increased from €19,500 to €20,500	1/1/2026
Family Tax Relief	For families below certain income thresholds: • €1,000 per child (€2,000 for single-parent families) • €1,000 per student • Up to €1,500 deduction for mortgage/rent interest on primary residence • Up to €1,000 deduction for energy upgrades or purchase of new electric vehicle	1/1/2026
Corporate Tax	Rate increased from 12.5% to 15%	1/1/2026
Crypto Tax	Flat 8% tax on gains from disposal of crypto; losses can offset gains within same year	1/1/2026
Loss Carry forward	Period extended from 5 years to 7 years	1/1/2026
R&D and Intangible Assets	120% super deduction for R&D and intangible assets extended until 2030	1/1/2026
Entertainment Expenses	Maximum deductible increased from €17,086 to €30,000	1/1/2026
Stock Exchange Registration Costs	Deductible up to €300,000; unused “De Minimis” allowance can be used within 3 years	1/1/2026
Stock Options	Flat 8% tax on employee stock options (up to double annual salary); max benefit €1m over 10 years	1/1/2026
Energy-Related Capital Expenditures	Enhanced capital allowances for energy upgrades extended until 2030	1/1/2026
Transfer Pricing / Documentation Thresholds	Exemption limits raised: • Financial transactions: €10m • Goods sales: €5m • Other transactions: €2.5m	1/1/2026
Gratuities / Termination Payments	One-time payments taxed at 20%; €200,000 exemption if due to termination	1/1/2026
Insurance Premium Deductions	Deductible for permanent/partial disability beyond life insurance; housing insurance deductible up to €500	1/1/2026
Agricultural / Livestock Capital Allowances	20% enhanced deduction on machinery/equipment, net of subsidies	1/1/2026
Interest Income	Exempt for individuals, pension funds, government bodies; subject to special defense contribution	1/1/2026
Collective Investment Schemes (CIS)	Interest income taxable, exempt from defense contribution; gains from CIS redemption considered dividend from 1/1/2031	1/1/2031 for redemption gains
Foreign Service Pension Regime	Tax rate increased from 5% on income >€3,420 to income >€5,000	1/1/2026
Corporate / Legal Residence	Companies established/registered in Cyprus considered Cypriot tax residents	1/1/2026
Pension / Provident Funds	Taxable if operating a business or owning property	1/1/2026
Subsidiary Share Interest Deductions	100% interest deduction abolished (transitional until 2027); no deduction if subsidiary in non-cooperative jurisdiction	Until 2027 for investments before 31/12/2025
Permanent Establishment in Non-Cooperative Jurisdiction	Profits not exempt from income tax	1/1/2026
Fines / Penalties	Adjusted to encourage voluntary compliance	1/1/2026

 

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7. Enforcement and Compliance Measures

The suggested tax reform gives significant powers to the Tax Commissioner which could be subject to abuse. Such powers include the authority to request tax-related information regardless of banking or professional confidentiality and the authority to suspend the operation of a business and seal its premises following three mandatory written warnings, in cases where the business repeatedly fails to meet its tax obligations, issues false or no invoices/receipts, or obstructs a tax audit.

In this article we provide more details on specific amendments of the tax law which enhance the ability of the Tax Commissioner to collect taxes:

• Suspension of Business Operations and Sealing of Premises (Article 32A)
• Rent Payments (Article 48A) - Obligation to Pay Rent via Bank Account 48A.
• Corporate Deregistration Non-Effect (Article 53A)
• Share Seizure (Section 9ST)
• Property Transfer to Settle Taxes (Section 9Z)

 

1. Suspension of Business Operations and Sealing of Premises (Article 32A)

Authority of the Tax Commissioner:
The Tax Commissioner may suspend the operation of a business and seal its premises if the business operator:

• • Fails to submit at least two tax returns or twelve-monthly withholding statements, or
  • Fails to pay taxes as declared or assessed, including withholding taxes, if the total unpaid amount exceeds €20,000, or
  • Issues inaccurate invoices or receipts, or fails to issue them, or
  • Obstructs a tax audit by authorized officials.

Duration:

• • The suspension/sealing period cannot exceed ten (10) days.
  • Changing the legal form of the business or the responsible person does not prevent enforcement if the business continues in the same location with the same or similar activity.

Notice Requirements:

• • Three written warnings must be sent before suspension, either via registered mail or delivered to the business premises:
    1. First warning: intention to suspend; at least 10 days for compliance.
    2. Second warning: if non-compliance continues; again at least 10 days for compliance.
    3. Third warning: final notice before enforcement (not included in the excerpt but implied).

Compliance Check:

• • After each notice period, the Tax Commissioner verifies whether the business has fulfilled its obligations.
  • Enforcement proceeds only if obligations remain unmet.

 

2. Rent Payments (Article 48A) - Obligation to Pay Rent via Bank Account 48A.

Rent payments for immovable property within the Republic, where the total monthly amount is equal to or exceeds five hundred euros (€500), must be made exclusively through:

(a) a bank transfer, or
(b) payment by debit or credit card, or
(c) any other recognized electronic payment method.”

 

3. Corporate Deregistration Non-Effect (Article 53A)

Regardless of the provisions of the Companies Law, when a legal entity owes any taxes, or has failed to submit tax returns for any tax year, or when an examination, audit, or investigation of its tax affairs is being conducted by the Tax Department, any change or deregistration of directors or officers of the legal entity from the register of the Registrar of Companies shall have no effect for the purposes of applying the provisions of this Law, if:

• the tax liabilities became due during their tenure in any of the above positions, or
• the failure to submit tax returns by the legal entity occurred during their tenure in any of the above positions, or
• they committed any offence under the provisions of this Law during their tenure in any of the above positions.

 

4. Share Seizure (Section 9ST)

• If a person refuses, delays, or fails to pay taxes owed to the Tax Commissioner exceeding €100,000, for more than 30 calendar days after the payment is due, and provided that:
  1. The deadlines or procedures under Articles 20, 20A, and 21 of the Assessment and Collection of Taxes Law have passed or been completed, and
  2. The tax is not being paid in instalments approved under Article 40, or
  3. The tax has not been waived or written off by Cabinet decision under Articles 54 and 54A, or the process is ongoing, or
  4. Sufficient security has not been provided to the Tax Commissioner for payment,
• Then the Tax Commissioner may seize any property of that person in the form of shares of legal entities under the provisions of this paragraph.

 

5. Property Transfer to Settle Taxes (Section 9Z)

• If a person fails, delays, or neglects to pay taxes or any additional amounts (including interest or penalties) exceeding €10,000, the Minister of Finance, upon the person’s application and following a proposal by the Tax Commissioner and a decision by the Council of Ministers, may accept a transfer of property to the State in settlement of these debts.
• The property must be free of any liens, encumbrances, or other burdens for the transfer to be accepted.
• I can also make a plain-language version for your blog explaining how this works for taxpayers and property owners.

 

8. Key Dates and Commencement

• 1 January 2026: Most provisions, including personal/corporate tax, SDC, CGT amendments, and enforcement measures, become effective.
• 1 January 2031: Redemption gains from collective investment schemes treated as dividends for SDC purposes.

 

9. Summary

The proposed Cyprus tax reforms, with the exception of the increase of the Corporation Tax Rate to 15% and the provisions granting the Tax Commissioner broad powers to seize shares, freeze assets, and even suspend business operations for unpaid taxes, are to the right direction, represent a strong step toward improving compliance and protecting public revenue.

While the majority of these measures are undoubtedly positive in principle, Tax Commissioners broad powers practical application could be challenging. To be commercially effective and fair, clear guidelines and safeguards must be in place to prevent misuse or arbitrary enforcement. Without such safeguards, there is a risk of exploitation by officials, which could undermine business confidence and create disputes, even when taxpayers are generally compliant. A balanced approach that combines enforcement with transparency and proportionality is essential to ensure the reforms achieve their intended purpose.

We would summarise the 2025 Cyprus Tax Reform as follows:

• Our disagreement with the Increase of Corporate Tax to 15% and Income Tax Office excessive powers mentioned above.
• Our agreement with the rest of the measures which will result in great help for local families, local and international businesses. In particular we are in agreement with:
  • The abolition of the following measures;
    • Deemed dividend tax
    • Antiparochi 20% tax
    • SDC on rental income

• • The changes on the following taxes
    • Increases of the PAYE tax thresholds, subject to conditions
    • Reduction of dividend tax to 5% from 17%
    • The introduction of the flat 8% crypto tax subject to conditions

• • The modernisation and alignment to current market trends
    • Extension on the non-domicile tax status to investors/ individuals
    • Extension of losses c/fwd, increase in entertainment expenses, increases in some penalties and amendments to stump duties.
    • Some errors and old thresholds have been modernised and penalties for non-compliance increased.
    • Increases transparency and strengthens anti-avoidance measures.

 

This reform represents a comprehensive overhaul of Cyprus’ tax system, balancing revenue collection with incentives for investment, energy efficiency, R&D, and compliance modernization.

CYAUSE Audit Services is an Audit & Assurance firm with offices in Nicosia and Limassol in Cyprus regulated by the UK ICAEW, International ACCA and the Cyprus ICPAC.

 

Our firm has extensive knowledge and experience in local tax legislations, relocation consultation, international tax planning solutions and licensing of investment firms, funds and insurance agents / brokers. Our routine day to day services include accounting, audit, tax and advisory services to international businesses interested in relocating or establishing presence to Cyprus.

 

Our Partnership with  BKR International  ( aUSA association ranked number 10 in the world), ACCACE Circle (European Network) and 3E Accounting International, a Hong Kong Network, ensures that we are wired and closely connected in all jurisdictions, getting the latest corporate and tax news ensuring our tax planning is accurate and validated before finalisation. Being part of international networks ensures seamless collaboration with overseas experts and access to fast and accurate information on overseas tax and corporate legislations.

 

Feel free to contact us at enquiries@cyprusaccountants.com.cy or call us at +357 99 428 543.

 

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