Cyprus 2026 Tax Reform: What Actually Changed (Full Summary)
Cyprus raised corporate tax to 15% on January 1, 2026, but also abolished deemed dividends and cut SDC on dividends from 17% to 5%. Here is everything that changed.
Cyprus enacted its most significant tax overhaul in over a decade on January 1, 2026. The headline: corporate tax goes from 12.5% to 15%, aligning with the OECD Pillar Two global minimum. But the reform is a package deal with several offsetting measures that reduce the total tax burden in other areas.
What increased
Corporate income tax: 12.5% to 15%. This applies to all Cyprus tax-resident companies and Cyprus permanent establishments of foreign companies. The increase was required to comply with the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which sets a 15% global minimum effective rate.
IP Box effective rate: 2.5% to 3%. The IP Box regime itself was unchanged, but since it applies as 80% deduction on qualifying IP income, the effective rate moved proportionally with the corporate rate (15% x 20% = 3%).
What decreased or was abolished
Deemed dividend distribution: abolished entirely. Previously, companies that did not distribute at least 70% of after-tax profits within two years were deemed to have distributed them, triggering a 17% SDC charge. This is gone.
SDC on actual dividends: 17% to 5%. When companies distribute real dividends to Cyprus tax-resident individuals who are not non-dom, the SDC rate dropped from 17% to 5%. For non-dom individuals, dividends remain fully exempt from SDC.
Loss carry-forward: 5 years to 7 years. Companies can now carry forward tax losses for seven years instead of five, giving more runway to offset profits against prior-year losses.
Personal tax-free threshold: EUR 19,500 to EUR 22,000. The first EUR 22,000 of employment income is now tax-free, up from EUR 19,500.
What this means for different profiles
For non-dom entrepreneurs extracting dividends: The net impact is slightly positive. Yes, corporate tax went up by 2.5 percentage points, but the abolition of deemed dividends removes a painful compliance trap. You now have full control over timing of distributions.
For companies reinvesting profits: The loss carry-forward extension from 5 to 7 years is meaningful if you are in a growth phase with initial losses.
For employees: The higher personal tax-free threshold (EUR 22,000 vs EUR 19,500) means EUR 2,500 more of your salary is tax-free, saving up to EUR 500/year depending on your bracket.
Cyprus vs. competitors after the reform
At 15%, Cyprus is no longer the cheapest EU option on headline corporate rate (Ireland held at 15%, Hungary at 9%, Bulgaria at 10%). But the combination of 15% corporate rate + 0% SDC on dividends for non-doms + 0% capital gains on securities + IP Box at 3% effective rate makes Cyprus highly competitive on total effective tax burden, especially for holding structures and IP-intensive businesses.
Bottom line
The reform trades a higher headline corporate rate for a cleaner, more predictable system. The abolition of deemed dividends alone is worth the trade for most owner-managed companies. If you were structured correctly before, you are likely better off now.