Cyprus corporation tax (IS) has been 15% since 1 January 2026, up from 12.5%. Despite the increase, Cyprus remains one of the lowest corporation tax jurisdictions in the EU. Key benefits remain intact: IP Box at 2.5% effective rate, dividend exemption on received dividends, NID deduction on new equity, and 0% on capital gains from share disposals. For non-domiciled owner-directors, dividends from the company are then taxed at only 2.65% GESY.
Cyprus corporate tax is 15% (from 1 January 2026) on net profits after allowable deductions — among the most competitive rates in the EU for substance-based companies.
The 2026 Rate Change
The Cyprus parliament approved a corporation tax rate increase from 12.5% to 15% on 22 December 2025, effective 1 January 2026. This was part of a broader fiscal reform package that also:
- Abolished the Deemed Dividend Distribution (DDD) rule for profits from 2026+
- Increased the personal income tax threshold from €19,500 to €22,000
- Reduced SDC on dividends for domiciled shareholders from 17% to 5%
Impact on provisional tax: If you calculated your 2026 provisional tax using the old 12.5% rate, recalculate immediately. Your July 2026 first instalment should reflect 15%.
What Is Taxable: The IS Base
Cyprus taxes the worldwide income of Cyprus tax-resident companies. A company is Cyprus-resident if it is managed and controlled from Cyprus (i.e., board meetings and key decisions happen in Cyprus).
Taxable income includes:
- Trading profits from business activities
- Rental income from property
- Foreign-source income (subject to double tax treaty relief)
- Interest income (excluding certain passive interest which may be exempt)
Exempt from IS:
- Dividends received from other companies (participation exemption, conditions apply)
- Profits from disposal of securities (shares, bonds, debentures)
- IP income sheltered under the IP Box regime
- Profits from permanent establishments abroad (election possible)
Key Tax Reliefs
Participation Exemption: Dividend Received
Cyprus companies that receive dividends from subsidiary companies are generally exempt from IS on those dividends, provided:
- The paying company is not resident in a jurisdiction that pays less than 50% of Cyprus IS on equivalent profits, AND
- The subsidiary is not more than 50% invested in overseas property interests
This exemption makes Cyprus attractive as a holding company jurisdiction.
The IP Box: 2.5% Effective Rate
Cyprus's IP Box regime allows a significantly reduced effective tax rate on income from qualifying intellectual property:
- Qualifying assets: Patents, copyrights on computer programs, utility models, other IP with similar characteristics, with some exclusions
- Mechanism: 80% of qualifying IP income is deducted from taxable profit
- Effective rate: 15% × 20% = 3% effective rate (the regime allows an effective rate of around 2.5–3% depending on nexus calculations)
Who uses this: Software companies, SaaS businesses, licensing companies, and anyone monetising IP. The IP must be created through qualifying R&D expenditure.
Notional Interest Deduction (NID)
NID is a deduction for notional interest on new equity injected into the company after 1 January 2015:
- NID rate 2025/2026: 10-year Cyprus government bond yield + 3% (approximately 5–6%, verify annually)
- Applied to: New equity — share capital plus contributions plus retained earnings from 2015 onwards
- Maximum NID: Cannot exceed 80% of taxable profit in any year
- Benefit: Reduces the IS base without any actual interest payment
Example: Company has €200,000 of qualifying new equity. NID rate = 5.3%. NID deduction = €10,600. IS saving = €10,600 × 15% = €1,590 per year.
NID is calculated and applied by your auditor in the TD4 filing.
Loss Carry Forward
Tax losses can be carried forward for 5 years to offset future profits. A loss of €30,000 in 2024 can reduce taxable profits in 2025, 2026, 2027, 2028, or 2029.
Losses cannot be carried back in Cyprus. They also cannot be surrendered to group companies unless a group relief election has been made.
The Two-Stage Tax Payment System
Corporation tax in Cyprus is paid in two stages:
Stage 1 — Provisional Tax:
- Based on estimated profit for the current year
- 50% paid by 31 July, 50% by 31 December
- Risk: underestimation by >25% triggers 10% penalty + 1.75% interest
Stage 2 — Final Tax (TD4):
- Filed by auditor by 31 March of J+2
- Calculated on actual audited profits
- Any balance (actual tax minus provisional payments) is paid with TD4
For full details, see our provisional tax guide.
Deductible Expenses
All expenses wholly and exclusively incurred in generating taxable income are deductible:
Fully deductible:
- Accountant and auditor fees
- Legal fees
- Software subscriptions (SaaS tools, APIs, development tools)
- Marketing and advertising (Google Ads, Meta, LinkedIn)
- Business travel (flights, hotels — with client visit documentation)
- Company secretary fees
- Office rent and registered address fees
- Salaries and employer social insurance (if applicable)
- Banking fees and payment processing fees (Stripe, etc.)
Partially deductible:
- Home office (proportional to business use area)
- Mixed-use vehicle (business proportion only)
- Mixed-use phone/internet (business proportion only)
Not deductible:
- Dividends paid to shareholders
- Personal expenses
- Tax penalties and fines
- Entertainment (generally not deductible)
The Non-Dom Advantage: End-to-End
For a non-domiciled sole shareholder, the overall tax efficiency of a Cyprus company is:
| Layer | Tax | Rate |
|---|---|---|
| Company profit | Corporation tax | 15% |
| Post-tax profit paid as dividend | GESY | 2.65% |
| Post-tax profit paid as dividend | SDC | 0% (non-dom) |
| Post-tax profit paid as dividend | Personal income tax | 0% (dividends exempt) |
| Sale of company shares | Capital gains | 0% |
Starting from €100 company profit:
- Pay €15 IS → €85 available
- Declare €85 as dividend → €2.25 GESY withheld
- Shareholder receives €82.75 — effective rate of 17.25%
Cyprus vs. Other EU Corporation Tax Rates (2026)
| Country | CT Rate |
|---|---|
| Cyprus | 15% |
| Ireland | 12.5% |
| Hungary | 9% |
| Germany | ~30% |
| France | 25% |
| Netherlands | 25.8% |
| UK | 25% |
Despite the 2026 increase from 12.5% to 15%, Cyprus remains among the lowest corporate tax jurisdictions in the EU and well below the global minimum tax rate discussions.
What the 2026 Reform Changed for Retained Profits
The Deemed Dividend Distribution (DDD) rule required Cyprus companies to distribute (or treat as distributed) 70% of profits within 2 years. This is abolished for profits from 2026. Companies can now retain profits indefinitely without forced distribution obligations.
For profits from 2023, 2024, and 2025: The old DDD rules still apply. If your company had undistributed profits from those years, consult your accountant about the remaining obligations.
Corporation tax planning — including IP Box structuring, NID calculations, and provisional tax optimisation — requires ICPAC-qualified advice. Browse certified tax advisors in Cyprus or accountants and auditors who specialise in Cyprus corporate tax.