The Cyprus tax reform 2026, explained: what changed and what it means for your company

The 2026 tax reform is the biggest rewrite of Cyprus taxation in decades. Parliament voted it on 22 December 2025, it was published in the Official Gazette on 31 December 2025, and it has been in force since 1 January 2026. Corporate tax went up, tax on dividends came down, and deemed dividend distribution, stamp duty and SDC on rents were all abolished.

What changed in the Cyprus tax reform 2026?

The reform is a package of seven laws, headlined by the Income Tax (Amendment) (No. 4) Law, N. 244(I)/2025, gazetted 31 December 2025. Five changes carry most of the weight: the corporate income tax rate rose from 12.5% to 15%; SDC on dividends for Cyprus-domiciled shareholders was cut from 17% to 5% for new profits; deemed dividend distribution was abolished for profits earned from 2026; stamp duty was abolished; and personal income tax got a higher tax-free threshold with rebuilt bands.

Around those headlines sits a second ring of changes that matter to owner-managed companies: a new 10% SDC charge on "disguised" distributions, an optional paid extension of the non-dom regime, a loosened 60-day tax-residency rule, SDC on rental income abolished, losses carried forward for seven years instead of five, and an earlier corporate-return deadline starting with the 2026 tax year. Each gets its own section below.

What is the new corporate income tax rate?

The corporate income tax rate is 15% from tax year 2026. It applies to all Cyprus tax-resident companies, with no reduced rate or small-company carve-out, and it applies from tax year 2026 onwards. Profits of 2025 and earlier stay at 12.5%.

Founders keep asking us about the same two points here. First, this is not the OECD global minimum tax. Cyprus enacted Pillar Two in a separate law that only concerns groups with consolidated revenue of €750 million or more, so it is irrelevant to a typical owner-managed company. Second, the filing calendar tightened alongside the rate: from tax year 2026 the corporate return and the final self-assessed tax are both due by 31 January of the second year after the tax year, so the 2026 return and its tax are due by 31 January 2028. The 2025 return keeps its old 31 March 2027 deadline.

What is the new SDC rate on dividends?

For Cyprus tax-resident and domiciled individuals, SDC on dividends paid from profits earned in tax year 2026 onwards is 5%, down from 17%. Non-doms and non-residents remain fully exempt from SDC on dividends, exactly as before the reform.

One layer applies to everyone, non-doms included: GeSY is still due on dividends at 2.65%, on total annual income up to €180,000, and for a dividend from a Cyprus company both the SDC and the GeSY are withheld at source by the company. The reform did not touch GeSY. What it did abolish, quietly, is SDC on rental income: the reform's SDC amendment law removed rents from the SDC Law entirely from 1 January 2026, so landlords now pay income tax on rents with no separate SDC layer on top.

Is deemed dividend distribution really abolished?

Yes, for profits earned from tax year 2026 onwards. Deemed dividend distribution (DDD) was the rule that treated 70% of a company's after-tax profits as paid out to its Cyprus-resident domiciled shareholders two years after the profit year, whether or not any dividend was declared, and charged SDC on that fiction. New profits can now be retained indefinitely with no deemed pay-out.

The old years get a transitional tail. Under the new transitional article 3Γ, 70% of the 2024 profits is deemed distributed on 31 December 2026 and 70% of the 2025 profits on 31 December 2027, at 17% SDC, in each case reduced by dividends actually paid from those profits. The company pays the SDC with a declaration by 31 January of the third year after the profit year and recharges it to the shareholders. A non-resident who held the shares at 31 December 2025 and later receives an actual dividend from those profits can reclaim the DDD SDC attributable to it.

What is the new charge on disguised distributions?

The price of the dividend cut is a new SDC charge on value that leaves the company informally, set at 10%, double the new dividend rate. It catches the market value of company assets used personally by a shareholder or a connected person, and the shortfall when a company sells an asset to a shareholder below market value. The charge reaches indirect shareholders too, and the SDC paid on it is non-refundable.

Companies must also issue each shareholder a certificate of any disguised distribution and the SDC withheld on it. The design is deliberate: a declared dividend from new profits is now cheap, and informal value extraction costs double.

Is stamp duty abolished in Cyprus?

Yes. The Stamp Duty Laws of 1963 to 2024 are repealed in full from 1 January 2026, covering every document category. Contracts and agreements signed from that date have no Cyprus stamp duty to pay, while documents signed before 2026 keep whatever stamping obligations they already had.

For companies this removes an entire micro-compliance chore from deal paperwork: no stamping runs, no stamping deadlines, no penalty arithmetic for late stamping on new documents.

What are the new personal income tax bands?

From tax year 2026 the bands are: 0% up to €22,000, 20% on €22,001 to €32,000, 25% on €32,001 to €42,000, 30% on €42,001 to €72,000, and 35% above €72,000. The tax-free threshold was €19,500 before, and the top band started at €60,000. Returns for 2025, filed during 2026, still use the old bands.

The reform also added income-tested deductions: per-child amounts, up to €2,000 per spouse for rent or mortgage interest on a main residence, and up to €1,000 for energy upgrades and electric vehicles. A further deduction of up to €500 for insuring the main home against natural disasters applies with no income test. And the filing net widened: from tax year 2026 every Cyprus-resident individual aged 25 to 70 must file a personal return by 31 July of the following year, regardless of income.

For owner-directors the practical effect lands in payroll. A salary that produced withholding under the old bands may produce little or none now, which shifts the optimum split between salary and dividends alongside the new 5% SDC. Re-run the numbers for 2026 rather than reusing last year's answer; our salary versus dividends guide walks through the full calculation.

Did non-dom status change?

The regime survives intact. Non-doms stay outside SDC on dividends and interest, and deemed Cyprus domicile still arises only after 17 of the 20 years preceding the tax year, so the exemption runs up to 17 years as before.

What is new is an option at the end of that runway. An individual without a Cyprus domicile of origin who becomes deemed domiciled can elect a flat SDC of €250,000 per five-year block, for at most two blocks, paid in a single instalment and exhausting all SDC liability for those five years. The election is irrevocable and is made on form T.D.631 by 30 June of the block's first year. Whether it pays off depends entirely on expected dividend and interest income, which is a personal-facts question worth an advisor's hour. Our non-dom guide covers the regime end to end.

Did the 60-day rule change?

Yes, it got easier to qualify. From tax year 2026 the condition that you must not be tax resident in any other state is removed from the 60-day rule, leaving four conditions: at least 60 days in Cyprus, no more than 183 days in aggregate in any other single state, a business, employment or office in a Cyprus tax-resident person held through the year, and a permanent home in Cyprus that you own or rent.

For internationally mobile founders this fixes the rule's most awkward edge. Another country claiming you as resident no longer disqualifies you from Cyprus residency by itself; competing claims now resolve under the applicable treaty.

What else is in the reform?

A handful of smaller changes are worth knowing even though they change no headline number:

• Tax losses carry forward for seven years from tax year 2026, extended from five. Losses of 2019, which would have expired against 2024 profits, can now be set against 2026 profits.
• Gains on disposals of crypto-assets are taxed at a flat 8% from tax year 2026, with crypto losses usable only against same-year crypto gains.
• Benefits from Commissioner-approved employee share and option plans are taxed at a flat 8%, with a minimum three-year vesting period and a €1,000,000 cap per rolling ten years.
• The entertainment-expense deduction cap rose to the lower of 1% of gross income and €30,000 from tax year 2026, up from €17,086.
• Every company incorporated in Cyprus is now Cyprus tax resident by default from tax year 2026, unless a double tax treaty provides otherwise. Management and control in Cyprus still works as a residency test on its own.

How Sumly handles the transition

The reform turned "which year did this profit come from" into a question with real money attached, and that is a bookkeeping question. Sumly keeps your books live through the year, so retained earnings sit in the accounts by period rather than as one undifferentiated pile, and every entry stays linked to the document behind it. When you ask Ask Sumly AI what a distribution would cost, the answer comes with the figures behind it, from your own books. Provisional tax and the corporate return are prepared from those same live books at the current rates, and once a period is filed it locks, so the numbers you submitted cannot shift underneath next year's comparison.

What should a company owner do now?

1. Re-estimate 2026 provisional tax at 15%. The instalments fall due on 31 July and 31 December, and if the estimate proves below 75% of the final figure, a 10% additional charge applies to the shortfall.
2. Tag retained earnings by profit year. A dividend from 2025 profits costs 17% SDC through 2031; a dividend from 2026 profits costs 5%. The books must be able to tell them apart.
3. Put the DDD tail dates in the cash plan. If domiciled shareholders hold 2024 or 2025 profits, 31 December 2026 and 31 December 2027 are live deadlines with SDC payable the following month.
4. Re-run salary versus dividends. The €22,000 threshold, the rebuilt bands and the 5% SDC all move the optimum, and the answer differs for doms and non-doms.
5. Keep personal use of company assets clean. The 10% disguised-distribution charge makes the company car at the villa and the below-market asset sale expensive habits.

If you are starting a company under the new rules, begin with how to register a company in Cyprus; if you are weighing who should run the books, do you need an accountant? lays out the options and pricing shows what the software path costs.

Questions founders actually ask

Frequently asked

When does the new corporate tax rate start applying?

From tax year 2026. Profits of tax years through 2025 are taxed at the old 12.5% rate, so the increase is not retroactive. Your 2026 provisional tax estimate, however, should already be calculated at 15%, because an estimate that lands below 75% of the final figure triggers a 10% additional charge on the shortfall.

Does the reform affect my company's 2025 profits?

The 2025 profits themselves stay at 12.5% corporate tax. The transition bites when you pay them out: dividends from profits of 2025 and earlier carry 17% SDC when distributed through 31 December 2031, while dividends from 2026 profits carry 5%. The last two deemed distributions also fall on those years, on 31 December 2026 for 2024 profits and 31 December 2027 for 2025 profits. Track retained earnings by profit year.

Does the global minimum tax (Pillar Two) apply to my small company?

No. Pillar Two is a separate Cyprus law aimed at multinational groups with consolidated revenue of €750 million or more. The 2026 reform's 15% corporate rate applies to every Cyprus company, but the Pillar Two top-up mechanics are irrelevant to a typical owner-managed business.

Is Cyprus still a low-tax country after the reform?

Yes. The corporate rate rose to 15% but stays among the lower rates in the EU, and most of the package moved in the taxpayer's favour: SDC on dividends fell from 17% to 5% for new profits, deemed dividend distribution was abolished going forward, stamp duty and SDC on rents were scrapped, and the personal tax-free threshold rose to €22,000. For many owner-operators the total burden on a euro of profit paid out as a dividend is now lower than before the reform.

Was anything else included in the reform?

Yes. Tax losses now carry forward seven years instead of five, gains on crypto-asset disposals are taxed at a flat 8%, Commissioner-approved employee share and option plans are taxed at a flat 8%, the entertainment-expense cap rose to the lower of 1% of gross income and €30,000, every Cyprus-incorporated company is now Cyprus tax resident by default, and the corporate return deadline moved to 31 January of the second year after the tax year.

Are more changes coming after 2026?

Implementation is still rolling. The Tax Department keeps issuing circulars and guidance on the new rules through 2026, and income tax returns for tax year 2026 will be the first filed through the Tax For All portal, during 2027. The enacted rates themselves are in force now.