Horst WickinghoffThe Cyprus tax reform of 2026 introduces the most comprehensive changes in 20 years: Corporate tax rises to 15%, the income tax-free allowance increases to EUR 22,000, SDC on dividends drops from 17% to 5%, and stamp duty is abolished entirely. The Non-Dom status remains as attractive as ever: 17 years of 0% tax on dividends and interest.
- CT Rate from 2026
- 15%
- Income Tax Allowance
- EUR 22,000
- Non-Dom Duration
- 17 Years
- SDC on Dividends
- 5% (Non-Dom: 0%)
- DTT Network
- 68 Treaties
- Inheritance Tax
- None
- Wealth Tax
- None
- IP Box
- Up to 80% exemption
- Crypto Tax (new)
- 8% Flat Tax
The 2026 Tax Reform: What Has Changed
On 22 December 2025, the Cypriot parliament passed the most comprehensive tax reform in over two decades (Sovereign Group). Effective from 1 January 2026, the reform positions Cyprus as one of the most competitive tax regimes in the EU while aligning the system with international standards.
The 2026 tax reform is the most comprehensive overhaul of the Cyprus tax system in over 20 years. It continues to position Cyprus as one of the most competitive tax regimes in the EU.
The key changes at a glance:
- Corporate Tax: Increased from 12.5% to 15% (alignment with OECD Pillar Two)
- Income Tax: Tax-free allowance increased from EUR 19,500 to EUR 22,000
- SDC on Dividends: Reduced from 17% to 5% for domiciled individuals
- Deemed Dividend Distribution (DDD): Completely abolished
- Stamp Duty: Completely abolished
- Crypto Taxation: New flat tax of 8% on crypto gains
- R&D Super Deduction: 20% additional deduction (120% total deduction) until 2030
The main driver of the reform is the implementation of EU Directive 2022/2523 regarding global minimum taxation (OECD Pillar Two). Multinational groups with a turnover exceeding EUR 750 million are thus subject to a minimum tax burden of 15% (PwC Tax Summaries).
Corporate Tax in Cyprus: 15% from 2026
The new corporate tax rate of 15% applies to all companies tax resident in Cyprus. Despite the 2.5 percentage point increase, the rate remains below the EU average of 21.3% and well below the UK (25%) (Kendris).
Two regulations remain particularly attractive:
- IP Box Regime: Qualifying IP income (patents, software licenses) can still be up to 80% tax-exempt. This results in an effective rate of just 3% on IP income.
- Participation Exemption: Dividends from subsidiaries remain completely tax-free, provided the subsidiary does not derive more than 50% of its income from passive sources or is subject to an effective tax of at least 6.25% (Chambers).
The R&D Super Deduction also offers a 20% additional deduction on qualifying research and development expenses. Companies can thus claim 120% of their R&D costs for tax purposes—a clear signal to promote innovation (Kendris).
Income Tax: New Allowances and Tax Rates
The reform increases the basic tax-free allowance from EUR 19,500 to EUR 22,000. This is a noticeable relief for all individuals liable for tax in Cyprus. The new income tax brackets from 2026 (ITR World Tax):
| Income Range | Tax Rate |
|---|---|
| 0 - 22,000 EUR | 0% (tax-free) |
| 22,001 - 32,000 EUR | 20% |
| 32,001 - 42,000 EUR | 25% |
| 42,001 - 72,000 EUR | 30% |
| From 80,000 EUR | 35% |
Additionally, there are new deductions for families: a child allowance for family incomes up to EUR 100,000 (1-2 children), EUR 150,000 (3-4 children), or EUR 200,000 (5+ children). Interest on housing loans can be deducted up to EUR 2,000 per spouse annually (PG Economides).
For new tax residents, there is a 50% income tax exemption on salaries, valid for 17 years. With an annual salary of EUR 100,000, only half—i.e., EUR 50,000—is subject to regular taxation (Kendris).
Non-Dom Status: 17 Years of Tax-Free Dividends
The Cypriot Non-Domicile regime is the centrepiece of personal tax planning in Cyprus. Anyone moving to Cyprus who was not previously tax resident on the island automatically receives Non-Dom status for 17 consecutive years (Harneys).
Specifically, Non-Dom status means:
| Income Type | SDC for Domiciled | SDC for Non-Dom |
|---|---|---|
| Dividends | 5% (from 2026) | 0% |
| Interest | 30% | 0% |
| Rental Income | 0% (abolished from 2026) | 0% |
| Capital Gains (foreign) | Generally tax-free | |
Furthermore: Cyprus levies no inheritance tax, no gift tax, and no wealth tax (Sovereign Group). For HNWIs and entrepreneurs with substantial dividend income, this is a significant advantage over almost any other EU country.
The 2026 Cyprus tax reform makes the Non-Dom status even more attractive. While corporate tax rises to 15%, the personal tax burden on dividends and interest for Non-Doms remains at zero percent—and stays there for 17 years.
The 60-Day Rule: Tax Residency with Minimal Presence
Alongside the classic 183-day rule, Cyprus offers a unique alternative: the 60-day rule. By spending at least 60 days per calendar year in Cyprus and meeting certain conditions, you can become tax resident—without needing to be there for 183 days (PwC Tax Summaries).
Requirements for the 60-day rule:
| Condition | Details |
|---|---|
| Minimum Stay | 60 days in Cyprus per calendar year |
| Permanent Home | Owned property or rental agreement in Cyprus |
| Economic Tie | Business or employment connection to Cyprus |
| No Other Tax Residence | Not spending more than 183 days in any other single country |
| Registration | Submit tax return (TD126) by 31 July |
The typical setup: Establish a Cyprus Ltd, employ yourself as director, rent an apartment, and spend at least 60 days a year on the island (Savva Cyprus). Combined with Non-Dom status, this creates an extremely efficient tax model for internationally active entrepreneurs.
The 183-day rule applies alternatively: Anyone spending more than 183 days in a calendar year in Cyprus automatically becomes tax resident—without further conditions.
Plan Your Cyprus Tax Residency
Whether using the 60-day rule or the 183-day model: The optimal structure depends on your business model, family situation, and travel plans. Dr. Werner & Partners has been advising international entrepreneurs on tax jurisdiction selection since 2013.
Special Defence Contribution (SDC): Fundamentally Reformed
The SDC is a peculiarity of the Cypriot tax system and primarily affects passive income. The 2026 reform brings significant changes (IBCCS Tax):
| SDC Aspect | Until 2025 | From 2026 |
|---|---|---|
| SDC on Dividends (Domiciled) | 17% | 5% |
| SDC on Rental Income | 3% on 75% of gross rent | Abolished |
| Deemed Dividend Distribution | 70% of profits after 2 years | Abolished |
| SDC on Concealed Dividends | - | New: 10% |
| Non-Dom Exemption | Yes | Yes, remains exempt |
The abolition of DDD (Deemed Dividend Distribution) is particularly relevant for holding companies. Previously, undistributed profits were fictionally treated as dividends after two years and subject to 17% SDC. This rule is eliminated for all profits from the 2026 financial year onwards (Lexology).
As an anti-abuse measure, a new SDC of 10% on concealed dividends has been introduced. This targets cases where shareholders attempt to disguise dividends as other types of payments.
Tax Comparison: Cyprus vs. Malta vs. UK vs. Dubai
How does Cyprus compare internationally? The following table shows the effective tax burden on a profit distribution of EUR 100,000 from a local company:
| Criteria | Cyprus (Non-Dom) | Malta (Refund) | UK | Dubai (Free Zone) |
|---|---|---|---|---|
| CT Rate | 15% | 35% (nominal) | 25% | 0-9% |
| Effective CT Rate | 15% | 5% (after 6/7 refund) | 25% | 0-9% |
| Tax on Dividends | 0% (Non-Dom) | 0% (no WHT) | Up to 39.35% | 0% |
| Effective Total Load | ~15% | ~5% | ~55% | ~0-9% |
| Minimum Stay | 60 Days | 183 Days | Statutory Test | 183 Days |
| EU Member | Yes | Yes | No | No |
| Inheritance Tax | None | None (if avoided) | 40% | None |
| IP Box | Yes (80% exemption) | No | Yes (Patent Box) | No |
Sources: (Contact Malta), (Chambers UK), (Chambers UAE)
When is which location suitable?
- Cyprus: Ideal for entrepreneurs with high dividend income who require minimal physical presence (60-day rule). Particularly attractive due to Non-Dom status and the combination of EU membership and tax exemption on passive income.
- Malta: Optimal for holding structures and companies with high profits. The 6/7 refund system results in an effective corporate tax of just 5%—the lowest in the EU. More on this in our Guide to the Malta Limited.
- Dubai: Attractive for very high turnovers and when no EU access is required. 0% income tax, 9% corporate tax above AED 375,000, 0% in Free Zones on qualifying income.
Other Taxes and Levies in Cyprus
| Tax/Levy | Rate |
|---|---|
| VAT (Standard) | 19% |
| VAT (Reduced) | 9%, 5%, 3% |
| Social Security (Employee) | 8.8% |
| Social Security (Employer) | 8.8% |
| Social Security (Self-Employed) | 16.6% |
| SS Cap | EUR 66,612/year |
| GESY Contribution (Employee) | 2.65% |
| GESY Contribution (Employer) | 2.90% |
| GESY Contribution (Self-Employed) | 4.0% |
| GESY Cap | EUR 180,000/year |
| Capital Gains Tax (CY Property) | 20% |
| Capital Gains Tax (Foreign) | 0% |
| Crypto Tax (from 2026) | 8% Flat Tax |
| Stamp Duty | Abolished (from 2026) |
Sources: (PwC Cyprus), (Relocate.me), (Remote People)
Cyprus has a network of 68 Double Taxation Treaties, including with the UK, US, and most EU nations. This extensive treaty network prevents double taxation of income in most cases (Cyprus Ministry of Finance).
Exit Tax: What You Need to Know
If you are leaving a high-tax jurisdiction like the UK, France, or Germany to move to Cyprus, you must be aware of exit tax rules. Moving tax residence can trigger taxes on unrealized gains in your home country.
UK Context: While the UK does not have a general exit tax for individuals on unrealized gains, leaving the UK can trigger Capital Gains Tax on the disposal of assets. Additionally, temporary non-residence rules may apply if you return to the UK within five years. For entrepreneurs with significant shareholdings, professional tax planning before relocation is essential.
Other countries like Germany and France have specific exit tax regimes that tax the unrealized value of company shares upon departure, though deferrals may be available when moving within the EU.
Malta as an Alternative?
Since 2026, the Cypriot corporate tax rate stands at 15%. Malta offers an effective tax burden of just 5% through its tax refund system—the lowest in the EU. However, Cyprus impresses with its Non-Dom status (0% on dividends for 17 years) and the 60-day rule. Dr. Werner & Partners will give you an honest assessment of which location fits your profile.
