On 22 December 2025 the Cyprus House of Representatives approved the most significant overhaul of the island’s tax system in more than two decades. The package — six amending laws — was published in the Official Gazette on 31 December 2025 and applies to tax years beginning on or after 1 January 2026. The headline that travelled furthest was the corporate income tax rate: up from 12.5% to 15%.

Taken alone, that reads as bad news for anyone who chose Cyprus for its rate. It is not that simple. For a large group of shareholders the total Cyprus tax on a euro of company profit has fallen sharply. For a smaller and rather specific group — including some of the very people Cyprus has spent a decade recruiting — it has risen. The difference turns on who owns the shares, not on what the company does.

The reform at a glance

Measure	Before 2026	From 2026
Corporate income tax rate	12.5%	15%
SDC on dividends to Cyprus resident and domiciled individuals	17%	5% on profits earned from 2026
Deemed dividend distribution	70% of profits deemed distributed after two years	Abolished for profits earned from 2026
Disguised distributions to shareholders	No specific charge	10% SDC
Tax loss carry forward	5 years	7 years
Stamp duty	Chargeable on a wide range of agreements	Abolished
SDC on rental income	Charged in addition to income tax	Abolished

Source: the six amending tax laws published in the Official Gazette of the Republic of Cyprus on 31 December 2025, effective 1 January 2026.

Why the headline rate is not the number that matters

What an owner actually pays is the sum of corporate tax on the profit and the personal charges on the dividend drawn from it. Alongside the corporate increase, the reform cut the Special Contribution for Defence (SDC) on dividends received by Cyprus tax resident and domiciled individuals from 17% to 5%, in respect of profits earned from 1 January 2026. The General Healthcare System (GHS) contribution of 2.65% on dividends is unchanged and is capped once total income reaches €180,000.

Put the two movements together and the arithmetic reverses.

Shareholder	Before reform 12.5% CIT, 17% SDC	From 2026 profits 15% CIT, 5% SDC	Change
Cyprus tax resident and domiciled individual	€29.70	€21.50	−8.20
Cyprus tax resident non-domiciled individual	€14.82	€17.25	+2.43
Shareholder who is not Cyprus tax resident	€12.50	€15.00	+2.50
Profit retained in the company	€12.50	€15.00	+2.50

Total Cyprus tax on €100 of company profit distributed to the shareholder. Illustration prepared by CYAUSE Audit Services from the rates enacted in the 2026 Cyprus tax reform. Assumes GHS at 2.65% on the amount distributed with the annual ceiling not reached, no foreign tax credits, no reliefs reducing the taxable base, and that the profits were earned in the relevant period. Figures are rounded.

For a Cyprus tax resident and domiciled owner, the combined burden on distributed profit falls from roughly 29.7% to 21.5% — a reduction of more than eight percentage points, notwithstanding the higher corporate rate. That is the largest single tax cut in the package for privately held Cyprus businesses, and it exists because the twelve-point SDC reduction dwarfs the two-and-a-half-point corporate increase.

A worked example

Consider a Cyprus company with €200,000 of taxable profit earned in 2026, distributing everything left after corporate tax to a single individual shareholder who is Cyprus tax resident.

If that shareholder is domiciled in Cyprus, corporate tax takes €30,000, leaving €170,000. SDC at 5% takes a further €8,500 and the GHS contribution at 2.65% takes €4,505. Total Cyprus tax is €43,005 and the shareholder receives €156,995. Under the previous rules the same €200,000 would have carried €25,000 of corporate tax, €29,750 of SDC and €4,638 of GHS — €59,388 in total, leaving €140,612. The reform puts roughly €16,400 more into the owner’s hands on the same profit.

If the shareholder is non-domiciled, there is no SDC either before or after the reform. The tax is €30,000 of corporate tax plus €4,505 of GHS, leaving €165,495 — against €170,363 under the old rules. The same reform that hands the domiciled owner €16,400 costs the non-dom roughly €4,900.

Who genuinely pays more

Three categories are worse off, and each of them matters commercially.

• Cyprus tax resident non-domiciled individuals. Non-doms are exempt from SDC on dividends, so they never paid the 17% and gain nothing from it being cut to 5%. They simply absorb the higher corporate rate. Their combined burden moves from about 14.8% to about 17.3%.
• Shareholders who are not Cyprus tax resident. Cyprus imposes no withholding tax on dividends paid to non-residents, outside the specific provisions for related companies in blacklisted and low-tax jurisdictions. Their entire Cyprus exposure is therefore corporate tax, and it rises from 12.5% to 15%.
• Companies that retain profits. The deemed dividend distribution rules are abolished for profits earned from 1 January 2026, so retention no longer triggers a deemed charge. But retained profit now bears 15% rather than 12.5%.

The non-dom result is the one worth pausing on. Cyprus built a significant part of its relocation proposition on the non-domicile regime, and that regime is untouched: a qualifying non-dom still pays no SDC on dividends, interest or rent, and still enjoys that exemption for seventeen years of Cyprus tax residence out of any twenty. What has changed is that the exemption now sits above a 15% corporate rate rather than a 12.5% one. In relative terms the regime is no less valuable — it still saves the entire 5% SDC — but the absolute number has moved, and anyone who modelled a relocation on 14.8% should update the model.

The 15% applies immediately; the 5% does not

This is the part that catches people out. The corporate rate increase bites from the first day of the 2026 tax year. The dividend reduction is tied to the profits from which the dividend is paid, not to the date the dividend is declared. Dividends paid out of profits earned up to 31 December 2025 remain subject to 17% SDC where they are received on or before 31 December 2031. Only profits earned from 1 January 2026 attract the 5% rate.

The practical consequence is that a company sitting on several years of accumulated reserves pays 15% on its new profits while still clearing its old reserves at 17%. Two dividends declared on the same day can carry different rates depending on which reserve they are drawn from, so the distributable reserves must be tracked by year of origin. Companies that have never maintained that analysis will need to build it before the next distribution, and the exercise is considerably easier done now than reconstructed later.

Transitional deemed distribution rules apply in the meantime. Profits earned in 2024 and 2025 are deemed distributed as to 70% two years after the end of the relevant tax year — 31 December 2026 for 2024 profits and 31 December 2027 for 2025 profits — and taxed at 17% SDC, to the extent the profits are attributable to Cyprus tax resident and domiciled shareholders. These are hard dates with a real price attached.

A separate 10% charge now applies to disguised distributions. It captures the private use of company assets by a shareholder or a person related to them, measured on the market value of the asset, and the transfer of company assets to a shareholder at below market value, measured on the shortfall. Company cars, company-owned property occupied privately and intra-family transfers at book value are the obvious exposures. The rate is deliberately double the standard 5%, and no refund is available once the charge has arisen.

What offsets the higher rate

Several measures in the same package reduce the base to which the 15% is applied, or remove cost elsewhere:

• Tax losses may now be carried forward for seven years instead of five.
• Qualifying scientific research and development expenditure attracts an additional 20% deduction — a 120% deduction overall — for the period to 2030.
• Stamp duty has been abolished, removing a transaction cost that applied across a wide range of commercial agreements.
• Deductible entertainment expenditure rises from €17,100 to €30,000, still subject to a cap of 1% of revenue.
• Rental income is no longer subject to SDC in addition to income tax, ending a long-standing double charge.
• Transfer pricing local file thresholds are raised to €5 million for goods, €10 million for financing and €2.5 million for other related-party transactions, taking many mid-sized groups out of the documentation requirement.
• Costs of listing shares on a recognised stock exchange are deductible up to €300,000, subject to conditions.

Set against these, some deductions tighten. Ex gratia payments to employees on appointment, retirement or termination are no longer deductible for the employer. Intangible assets with an indefinite useful life are amortised over twenty years rather than ten. Group relief now requires a company to use its own carried-forward losses before drawing on those of other group companies. And the statute of limitations runs for six years from the date the return is submitted, with books and records to be retained for the same period.

One structural change deserves separate mention. A company incorporated under the Cyprus Companies Law is now treated as Cyprus tax resident irrespective of where it is managed and controlled, unless an applicable double tax treaty deems it resident elsewhere. Owners who incorporated in Cyprus but run the business from abroad can no longer assume they sit outside the Cyprus corporate tax net.

What this means in practice

Cyprus is no longer competing on the lowest headline rate in the European Union, and it has stopped trying to. The 15% figure aligns the country with the global minimum effective rate agreed under the OECD/G20 Inclusive Framework and transposed across the European Union by the Minimum Tax Directive, which Cyprus brought into national law in December 2024. What Cyprus now offers a private business owner is a total burden of roughly 21.5% from profit to pocket, or roughly 17.3% for a qualifying non-dom, inside an EU member state with an extensive treaty network. Judged on the number that actually leaves the bank account, the package is a material improvement for most owner-managed Cyprus companies.

Four practical consequences follow. Distributable reserves need to be segregated by year of origin so that pre-2026 and post-2026 profits are not distributed indiscriminately. Any structure that relies on the non-domicile regime should be re-modelled at 15%, because the saving relative to the previous position is smaller than it was. Shareholder benefits in kind should be reviewed against the new 10% disguised distribution charge before the year end rather than after it. And the deemed distribution dates of 31 December 2026 and 31 December 2027 should be in the diary now.

How we can help

We advise Cyprus companies and their shareholders on exactly this calculation: what the reform costs, what it saves, and what should change before the next distribution. That work typically includes analysing distributable reserves by year of origin, modelling the effective rate for each class of shareholder, quantifying the deemed distribution exposure on 2024 and 2025 profits, testing whether shareholder benefits fall within the new 10% disguised distribution charge, and confirming that the corporate tax computation takes full advantage of the extended loss carry-forward and the research and development deduction. Where circumstances have changed, we can also review whether the non-domicile position remains the right one.

Please contact us at enquiries@cyprusaccountants.com.cy or on +357 22 336 309 to discuss your position before your next distribution.

Disclaimer: This article is provided for general information only and does not constitute investment, tax, legal or audit advice. It reflects the law as enacted at the date of publication and should not be relied upon in isolation. Interested parties should enquire at enquiries@cyprusaccountants.com.cy or +357 22 336 309 for advice on their own circumstances.

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About Us

CYAUSE Audit Services advises Cyprus companies and their shareholders on corporate tax computations and returns, Special Contribution for Defence on dividends and deemed distributions, distributable reserve analysis by year of origin, non-domicile tax residency applications and cross-border shareholder structuring. We model what a distribution will actually cost each class of shareholder after the 2026 reform, and we carry out the statutory audits on which those computations are built.

CYAUSE Audit Services is an Audit & Assurance firm with offices in Cyprus and the UAE. During 2015 we have been awarded by I.C.P.A.C and the A.C.C.A (local and international association of Chartered Certified Accountants) for the Quality of our Audit Services and our Office’s Procedures.

Being a Truly International Audit & Assurance firm, we have associates from all over the world and we are constantly looking for new associates to expand our network further. At present, CYAUSE Audit Services operates internationally through its membership with BKR International amongst the largest American associations in the world, Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience. Our network covers almost 40 jurisdictions with over 2,000 professionals, it supports more than 10,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and processes at least 170,000 payslips globally.

CYAUSE Audit Services Ltd is also a member of BKR International one of the biggest US Accounting Associations of the word and the 3E Accounting Network, an international accounting network which originates from Hong Kong and has more than 80 members from all over the world.

Contact Us

If you would like us to assist you with your Cyprus corporate tax computation, dividend and deemed distribution planning, distributable reserve analysis or a non-domicile tax residency application, please contact us at enquiries@cyprusaccountants.com.cy or call us at +357 22 336 309.

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