Cyprus increased its corporate income tax rate from 12.5% to 15% effective January 1, 2026, aligning with the OECD Pillar Two global minimum tax framework. Despite the rate increase, Cyprus remains highly competitive: dividends between group companies are still largely exempt, capital gains on share disposals remain at 0%, and the IP Box regime continues to offer an effective 3% rate on qualifying IP income — making Cyprus one of the most tax-efficient corporate jurisdictions in the EU.
What Changed on January 1, 2026
The 2026 tax reform was approved by the Cyprus parliament on December 22, 2025. For corporate tax, the key change was:
| Item | Before 2026 | From January 1, 2026 |
|---|---|---|
| Corporate income tax rate | 12.5% | 15% |
| Provisional tax basis | 12.5% of estimated profits | 15% of estimated profits |
| IP Box effective rate | 2.5% (12.5% x 20%) | 3% (15% x 20%) |
Everything else remained the same. The rate change was the only significant corporate tax modification.
What Corporate Income Is Taxable
The 15% rate applies to the net taxable profit of Cyprus tax-resident companies — that is, revenue minus allowable deductions.
Revenue that enters the taxable calculation:
- Trading income from services or goods sold
- Rental income (from Cyprus or foreign property)
- Interest income (though NID may offset this)
- Royalties not covered by IP Box
- Foreign income (depending on treaty and PE rules)
Deductions that reduce taxable profit:
- All legitimate business expenses (salaries, rent, professional fees, software, marketing)
- Depreciation of business assets
- Interest on business borrowings
- Notional Interest Deduction (NID) on new equity capital
- Losses carried forward from prior years (up to 5 years)
- IP Box 80% deduction on qualifying IP income
What Is Exempt from Cyprus Corporate Tax
Several categories of income are completely outside the corporate tax net:
1. Dividends Received from Subsidiaries
Dividends received by a Cyprus company from another company are generally exempt from corporate tax, subject to conditions:
- The paying company is not a "foreign tax resident" in a jurisdiction with a very low tax rate
- The dividend is not deductible in the paying company
- The anti-abuse provisions do not apply
In practice, dividends flowing through a Cyprus holding structure from operating subsidiaries are routinely tax-exempt.
2. Gains from Disposal of Securities
This exemption is one of the most valuable in Cyprus law. Profits (capital gains) from the disposal of:
- Shares
- Bonds and debentures
- Rights and options on securities
- Units in investment funds
...are fully exempt from Cyprus corporate income tax. There is no minimum holding period, no minimum shareholding requirement (for the exemption — the participation exemption on dividends has separate rules). Cyprus companies can buy and sell shares without paying any corporate tax on the gains.
Cyprus companies pay 0% corporate tax on gains from the disposal of shares and other securities, making Cyprus an exceptional jurisdiction for holding companies, investment funds, and entrepreneurs planning eventual company exits.
3. Profits from Foreign Permanent Establishments
Subject to conditions and anti-abuse rules, profits from a Cyprus company's permanent establishment in a foreign country may be exempt from Cyprus corporate tax (taxed only in the foreign country under the relevant treaty).
4. IP Box Income (80% Deduction)
Under the Cyprus IP Box regime, 80% of qualifying IP income is deductible from taxable income. The remaining 20% is taxed at 15%, giving an effective corporate tax rate of 3% on qualifying IP income.
The 15% Rate in Context: EU Comparison
| Country | Corporate Tax Rate 2026 | Capital Gains on Shares | Dividend Exemption |
|---|---|---|---|
| Cyprus | 15% | 0% (securities) | Yes (conditions) |
| Ireland | 12.5% (qualifying) | 33% CGT | Partial |
| Malta | 35% (refund system to ~5%) | CGT applies | Participation exemption |
| Netherlands | 19-25.8% | 25.8% (above 5% stake) | Participation exemption |
| Luxembourg | 17% (+municipal) | Exempt (conditions) | Participation exemption |
| Germany | ~30% (federal + trade) | 25% + surcharge | 95% exempt |
| France | 25% | 30% flat | 95% exempt |
Cyprus at 15% remains one of the lowest corporate tax rates in the EU, and the combination of 0% on capital gains and extensive dividend exemptions makes the effective rate often well below 15%.
Impact on Provisional Tax: Recalculate Your 2026 Estimates
If your company made provisional tax payments in 2025 based on the 12.5% rate, your 2026 provisional tax must be recalculated at 15%.
2026 provisional tax deadlines:
- First installment (50% of estimated IS): July 31, 2026
- Second installment (50%): December 31, 2026
Warning: If your estimate is more than 25% below the actual IS, a 10% penalty applies plus 1.75%/year interest. Use 15% for all 2026 calculations.
Example: Company expects €80,000 net profit in 2026.
- IS estimate: €80,000 × 15% = €12,000
- First installment: €6,000 by July 31
- Second installment: €6,000 by December 31
The Notional Interest Deduction (NID) Is Still Available
The NID allows companies to deduct a notional interest on new equity capital at a rate approximately equal to the Cyprus 10-year government bond yield plus 3% (check the current rate annually as it varies).
How it works:
- Your company has €200,000 of new equity (share capital + retained earnings from equity injections)
- Current NID reference rate: approximately 5.3% (illustrative for 2026 — verify annually)
- NID deduction: €200,000 × 5.3% = €10,600 deducted from taxable profit
- IS saved: €10,600 × 15% = €1,590
The NID applies to equity capital added after January 1, 2015. Retained earnings from trading profits do not qualify unless specifically documented as equity injections. Your auditor calculates and applies the NID in the TD4 declaration.
For help with corporate tax compliance, provisional tax calculations, and NID optimization, consult a qualified accountant from our /directory/accountants/ directory. For tax strategy advice, see our /directory/tax-advisors/ listings.
For the full picture on deductions and IP Box rates, see our Cyprus corporate tax guide and model your liability with the tax calculator.
This article is for informational purposes only and does not constitute tax or legal advice. Tax rates and rules change frequently. Always verify current rates and provisions with a licensed ICPAC-qualified accountant before making tax decisions. Find qualified professionals in our directory.