Cyprus Tax System – Updated Overview (Post-2026 Reform)

Cyprus offers one of the most attractive and transparent tax regimes in Europe, fully compliant with EU Directives, OECD standards and international anti-avoidance frameworks. Its competitive corporate tax rate, broad participation exemptions and extensive double tax treaty network render Cyprus an ideal jurisdiction for structuring regional and international business operations.

Corporate Tax Residence

A company is considered a Cyprus tax resident if it is managed and controlled from Cyprus. In addition, since 2023, a company incorporated in Cyprus is by default considered a Cyprus tax resident, provided it is not tax resident in another jurisdiction. Cyprus tax resident companies are taxed on their worldwide income, subject to applicable exemptions and deductions. As from 1 January 2026, the corporate income tax (CIT) rate is 15% (increased from 12.5%) on taxable profits.

Controlled Foreign Company (CFC) Rules

Cyprus applies CFC rules in line with the EU Anti-Tax Avoidance Directive (ATAD). Undistributed profits of foreign companies directly or indirectly controlled by a Cyprus tax resident company may be subject to taxation in Cyprus, in case the foreign entity is taxed at a low effective tax rate, and the income falls within the definition of non-genuine arrangements aimed at obtaining a tax advantage. Certain substance-based and low-risk exemptions apply.

Non-Resident Companies

A non-Cyprus tax resident company is subject to Cyprus corporation tax on profits attributable to a permanent establishment (PE) in Cyprus and Certain Cyprus-source income. Foreign taxes paid may be credited against Cyprus tax, subject to treaty provisions and unilateral tax credit relief.

Exemptions from Corporate Income Tax

The Cyprus tax system provides extensive exemptions:

Special Defence Contribution (SDC)

Special Defence Contribution applies only to Cyprus tax resident AND Cyprus domiciled individuals. It does not apply to Cyprus companies (as from the reform changes), non-dom individuals and non-residents. Following the 2026 tax reform, the scope of SDC has been significantly narrowed. SDC Treatment Post-2026 Reform.

Dividends

• 5% SDC on dividends received by Cyprus tax resident and Cyprus domiciled individuals.
• 0% for companies.
• Deemed Dividend Distribution (DDD) rules have been abolished.

Interest

The reform clarified the classification. For companies all interest income is treated as business income and taxed under Corporate Income Tax at 15% and it is not subject to SDC.

For Cyprus domiciled individuals all interest income is treated as passive and is taxed under SDC at 17% on the gross amount. Reduced 3% SDC applies to certain qualifying government bonds and specific instruments. Interest is not subject to personal income tax.

Rental Income

As from 1 January 2026 SDC on rental income has been abolished. Rental income is now taxed only under personal or corporate income tax, as applicable.
 

Loss Relief

As from 2026, tax losses may be carried forward for 7 years (previously 5 years), subject to continuity and anti-abuse provisions. Group relief remains available between Cyprus tax resident group companies.