Cyprus has officially entered a new fiscal era with the implementation of a landmark tax reform package. Following its implementation on 1 January 2026, this landmark reform package has spent the last several weeks fundamentally reshaping the fiscal landscape. Designed to align the Republic with OECD Pillar Two standards while modernizing personal relief and digital asset frameworks, the Cyprus Tax Reform 2026 changes represent the most significant tax evolution in over two decades.
For clients of AuditNet, navigating this transition requires a clear understanding of how these legislative updates impact corporate structures, personal wealth, and compliance obligations.
Executive Summary: 2025 vs. 2026 Comparison
To quickly grasp the scope of the changes, refer to the table below detailing the primary shifts in the Cyprus tax environment.
| Tax Category | 2025 Rate / Rule | 2026 New Rate / Rule |
| Corporate Income Tax (CIT) | 12.5% | 15% |
| Tax-Free Personal Threshold | €19,500 | €22,000 |
| Dividend SDC | 17% | 5% (for post-2026 profits) |
| Crypto-Asset Gains | Individual Scales (up to 35%) | 8% Flat Tax |
| Stamp Duty | Applicable on contracts | Fully Abolished |
| Deemed Dividend (DDD) | Mandatory after 2 years | Abolished (for post-2026 profits) |
| Mandatory Filing | Based on income threshold | All residents aged 25–71 |
1. Corporate Taxation: Aligning with the 15% Global Minimum
The headline change for 2026 is the increase of the Corporate Income Tax (CIT) rate from 12.5% to 15%. This shift ensures Cyprus remains compliant with the OECD Pillar Two framework, avoiding “top-up” taxes being collected by other jurisdictions.
Strategic Extensions & R&D Incentives
To offset the rate increase, the government has introduced several growth-oriented measures:
- 7-Year Loss Carry-Forward: Businesses can now carry forward tax losses for 7 years (up from 5), providing a longer runway for startups and capital-intensive projects to achieve profitability.
- R&D Super-Deduction: To foster innovation, qualifying R&D expenses incurred between 2025 and 2030 enjoy a 20% extra allowance. This effectively lowers the tax burden for tech-driven firms.
- Intangible Asset Amortization: Indefinite-life intangibles are now amortizable over a 20-year period, simplifying the balance sheet for holding companies.
AuditNet Tip: Companies should reassess their current corporate tax planning strategies to account for the 2.5% rate hike while maximizing the new R&D and loss carry-forward benefits.
2. SDC Reform: The End of Deemed Dividend Distribution
One of the most welcomed changes is the radical reform of the Special Defence Contribution (SDC).
One of the most welcomed changes is the radical reform of the Special Defence Contribution (SDC).
- Dividend SDC Reduction: For profits generated after 1 January 2026, the SDC rate on dividends falls from 17% to 5%.
- Interest Income Update: Interest earned by individuals remains subject to SDC at 17% (exempt from income tax), while interest earned by companies is now subject solely to Corporate Income Tax (CIT).
- Abolition of SDC on Rent: Payment of SDC on rental income has been fully abolished.
- Abolition of DDD: The “Deemed Dividend Distribution” rule is abolished for post-2026 profits.
- Disguised Dividends (The 10% Rule): To prevent abuse, a new 10% tax applies to “disguised dividends,” including below-market-value transfers or the private use of company assets.
3. Personal Income Tax: New Brackets & “Green” Deductions
The 2026 reform provides significant relief for low-to-middle-income earners by raising the tax-free threshold to €22,000.
To benefit from these new social and environmental deductions in your monthly payroll, employees should have submitted the newly introduced Form TD59 to their employers in January. If you missed this window, ensure your payroll department updates your status to reflect these allowances for the remainder of the 2026 tax year.
New 2026 Tax Bands
| Chargeable Income (€) | Tax Rate | Cumulative Tax (€) |
| 0 – 22,000 | 0% | 0 |
| 22,001 – 32,000 | 20% | 2,000 |
| 32,001 – 42,000 | 25% | 4,500 |
| 42,001 – 72,000 | 30% | 13,500 |
| Over 72,000 | 35% | – |
Enhanced Social Deductions
For individuals earning between €100,000 and €200,000, the reform introduces specific deductions aimed at social welfare and the “Green Transition”:
- Family Support: Additional deductions for dependent children or those in university.
- Housing & Environment: Relief for primary residence loan interest, energy-efficiency improvements, and the purchase of Electric Vehicles (EVs).
- Golden Handshakes: The tax-free limit for voluntary retirement or redundancy payments has jumped from €20,000 to €200,000, a massive benefit for late-career professionals.
4. Crypto-Asset Taxation: Clarity at Last
Cyprus has positioned itself as a premier hub for digital assets by introducing a clear 8% flat tax on gains from crypto-assets.
- Applicability: This applies to the sale, gift, exchange, or use of crypto for payments.
- Mining Exclusion: Importantly, crypto generated through mining remains excluded from this flat tax, often falling under general income rules.
- Restrictions: Losses from crypto-assets cannot be carried forward or group-relieved against other types of income.
5. Enhanced Compliance & The “Universal Filing” Mandate
The Tax Department has significantly increased its oversight capabilities, including the ability to seal business premises for repeated non-compliance or unpaid tax debts exceeding €20,000.
- Universal Filing: Every Cyprus-resident individual aged 25 to 71 is now legally required to file a tax return, regardless of income level.
- Filing Deadlines: With the 31 January filing deadline (from the prior cycle) now passed, focus shifts to the 31 March 2026 requirement. By this date, all employers must submit their annual TD7 forms for 2024 and monthly declarations for late 2025. Extensions for the 2023 Corporate and audited personal Tax Returns also expire on this date.
- Audit Thresholds: The annual turnover threshold for self-employed individuals required to prepare audited accounts has been increased to €120,000.
- Digital Rent Payments: All rental transactions over €500 must now be processed electronically to ensure transparency and maintain eligibility for the SDC rent exemption.
- Director Liability: The 2026 reform establishes joint and several liability for directors, who remain personally liable for tax omissions occurring during their tenure, even after resignation.
These changes affect reporting frameworks and audit & assurance requirements.
6. Capital Gains Tax (CGT) & Stamp Duty Abolition
To stimulate the real estate market, the government has fully abolished the Stamp Duty Law. This removes a traditional layer of “friction” costs during contract signings and business acquisitions.
Regarding Capital Gains Tax, the net has widened. Shares in companies that derive at least 20% of their value from Cyprus immovable property are now subject to CGT (lowered from the previous 50% threshold). However, new lifetime exemptions provide balance:
- General Exemption: €30,000
- Agricultural Land: €50,000
- Primary Residence: €150,000
The revised CGT rules may alter planning around property holdings and equity transactions, situations that commonly benefit from corporate advisory expertise.
Closing Comments: Preparing for 2026 with AuditNet
The 2026 Cyprus Tax Reform is a “give and take” model. While the corporate rate has risen, the removal of Stamp Duty, the reduction of SDC, and the abolition of DDD create a more agile environment for reinvestment.
Success in this new regime requires meticulous record-keeping and a proactive approach to the new mandatory filing requirements. AuditNet is ready to assist you in navigating these complexities, ensuring your audit and assurance needs are met under the updated reporting frameworks.
Contact AuditNet today for a personalized consultation on how the 2026 reforms affect your specific business structure.