What This Means for You
For Business Owners
You will pay slightly higher corporate tax, but significantly lower dividend tax.
Overall, Cyprus remains highly efficient for operating and growing a business.
For Employees
You benefit from:
- Higher tax-free income
- Lower effective taxation
- New deductions
For Investors
You benefit from:
- Improved dividend taxation
- Clear crypto tax framework
- More favorable rental income treatment
How Paper Rock Administration Limited Can Help
At Paper Rock Administration Limited, we provide professional support including:
- Company formation and structuring
- Tax planning and optimization
- Corporate administration
- Compliance support
- Ongoing advisory services
Our goal is to ensure that your business operates efficiently, compliantly, and strategically under the new tax environment.
Conclusion
The Cyprus Tax Reform 2026 represents a modern, transparent, and competitive tax framework.
While corporate tax has increased, significant benefits such as lower dividend tax, higher personal tax thresholds, and improved investment conditions ensure Cyprus remains one of Europe’s most attractive locations for business and investment.
Understanding and applying these changes correctly is essential.
Paper Rock Administration Limited is here to guide you every step of the way.
Paper Rock Administration Limited
Professional Corporate and Administrative Services
Cyprus
Cyprus Tax Reform 2026: What Individuals and Business Owners Need to Know
Introduction
Cyprus has entered a new tax era. From 1 January 2026, the government implemented the most significant tax reform in more than two decades. The reform aligns Cyprus with international standards while maintaining its attractiveness for businesses, entrepreneurs, investors, and employees.
At Paper Rock Administration Limited, our role is to help individuals and companies understand how these changes affect them and how to position themselves properly moving forward.
This article explains the key changes in simple, practical terms.
1. Corporate Tax Increase: 12.5% → 15%
The corporate income tax rate has increased from 12.5% to 15%.
This means that companies will now pay €15 in tax for every €100 of profit instead of €12.50.
Why this change was made
This adjustment aligns Cyprus with the OECD Global Minimum Tax framework, ensuring Cyprus remains fully compliant and internationally credible.
What this means in practice
Cyprus remains one of the lowest corporate tax jurisdictions in the European Union.
Example
- Company profit: €100,000
- Previous tax: €12,500
- New tax: €15,000
Despite the increase, Cyprus continues to offer a highly competitive tax environment.
2. Major Reduction in Dividend Tax: 17% → 5%
This is one of the most important and beneficial changes.
Dividend tax for Cyprus tax resident and domiciled individuals has been reduced from 17% to 5%.
Why this is important
This significantly improves how business owners extract profits.
Example
Profit distributed: €50,000
- Before: Dividend tax €8,500
- Now: Dividend tax €2,500
This results in significantly higher net income for shareholders.
3. Abolition of Deemed Dividend Distribution (DDD)
Previously, Cyprus companies were subject to tax on profits even if dividends were not actually paid.
This rule has now been abolished.
What this means
Companies can now:
- Retain profits without automatic tax penalties
- Reinvest profits freely
- Manage cash flow more efficiently
This is especially beneficial for growing companies and startups.
4. Increase in Tax-Free Personal Income Threshold
The tax-free income threshold has increased from €19,500 to €22,000.
Individuals earning up to €22,000 now pay zero income tax, providing direct financial relief to employees and professionals.
5. New Personal Income Tax Bands
| Income | Tax Rate |
|---|---|
| €0 – €22,000 | 0% |
| €22,001 – €32,000 | 20% |
| €32,001 – €42,000 | 25% |
| €42,001 – €72,000 | 30% |
| €72,000+ | 35% |
Most taxpayers will now pay less tax than before.
6. New Tax Benefits and Deductions
The reform introduces new deductions for individuals, including:
- Housing costs (rent or mortgage)
- Families with children
- Energy-efficient home upgrades
- Electric vehicle purchases
- Student-related expenses
These deductions further reduce the overall tax burden.
7. Cryptocurrency Taxation Introduced
For the first time, cryptocurrency profits are taxed under a clear framework.
Crypto gains are now taxed at a flat rate of 8%, providing clarity and certainty for investors and traders.
8. Abolition of Special Defence Contribution on Rental Income
Rental income is no longer subject to Special Defence Contribution (SDC).
This improves returns for property owners and makes real estate investment more attractive.
9. Cyprus Companies Automatically Considered Tax Residents
Companies incorporated in Cyprus will now generally be considered Cyprus tax residents.
This strengthens the country’s credibility and prevents abuse of corporate structures.
10. Overall Impact: Cyprus Remains One of Europe’s Most Attractive Jurisdictions
Even after the reform, Cyprus remains highly competitive.
Typical combined taxation for company profits distributed as dividends
- Corporate tax: 15%
- Dividend tax: 5%