Tax Reform 2026

On 22 December 2025, the House of Representatives approved a tax reform package of several bills. The reforms constitute the first major overhaul to the Cyprus tax system in over twenty years and have taken effect as of 1 January 2026.

A. Objectives of the Tax Reform:

The key objectives of this tax reform are:

• Modernising the tax system by replacing outdated and inefficient mechanisms.

• Enhancing tax fairness and social equity through a more proportionate allocation of the tax burden.

• Aligning with international and EU tax standards to enhance transparency and compliance.

• Boosting competitiveness and sustainable growth through a more investment-friendly tax framework.

B. Stamp Duty Law of 1963 (N.19/1963) (the “Stamp Duty Law”):

The Stamp Duty Law has been repealed and will no longer be in effect. This repeal will reduce transactional costs for business and individuals while facilitating more efficient completion of transactions.  

C. Collection of Taxes Law of 1962 (N.31/1962) (the “Collection of Taxes Law”):

1. A key amendment made to the Collection of Taxes Law is the addition of article 9F, which introduces an expansion of the Tax Commissioner’s discretionary powers in circumstances where an individual has significant tax arrears. The Tax Commissioner now has the authority to register a memo over the person’s shares as security for the debt. The security may cover up to double the owed amount including interest and charges, if they have tax arrears that exceed the value of €100,000 and have remained unpaid for more than 30 days after the deadline by which the amount is to be paid.

2. This expansion to the Tax Commissioner’s discretionary powers is an added mechanism that can be utilised to ensure the repayment of tax arrears owed by taxpayers.

D. Capital Gains Tax Law of 1980 (N. 52/1980) (the “CGT Law”):

1. The CGT Law has also undergone a series of amendments that cover the capital gains tax (CGT) exemption thresholds, share disposals and immovable property. We set out below, briefly, some of the main amendments.

2. The amending law introduces a definition for “immovable property” by cross-referencing the definition given in the Immovable Property (Tenure, Registration and Valuation) Law, in order to create consistency in the terminology between relevel legislation.

3. The definition of the term “property” (which includes shares of companies which, directly or indirectly, hold shares of companies which own immovable property situated in Cyprus) has been amended to reduce the threshold of the immovable property value against the market value of the said shares from at least 50% to 20%.

4. The Lifetime Capital Gains Tax exemption thresholds have been revised:

• The General exemption is increased from €17,086 to €30,000

• Agricultural land exemption increased from €25,629 to €50,000

• Primary residence exemption increased from €85,430 to €150,000.

5. In addition, there have been some amendments to the CGT on the sale of shares of companies listed in regulated and unregulated markets. There will be no CGT charged on capital gains from the sale of shares listed on a regulated stock exchange market. Also, capital gains from shares listed on a non – regulated market will be exempt from CGT if the total disposals in the calendar year do not exceed €50,000.If the total value of disposals exceeds €50,000 in a calendar year, capital gains tax at the normal rates is applied from the point at which the threshold is exceeded.

E. Assessment and Collection of Taxes Law of 1978 (N. 4/1978) (the “ACT Law”):

1. The main amendments made to the ACT Law relate to tax administration and filing of tax returns. The first amendment concerns the obligation to file a tax returns form. The following categories of persons and/ or companies now have an obligation to file a tax return:

1. Cyprus residents who either (i) have gross income falling within the scope of Article 5(1) of the Income Tax Law, or (ii) are aged between 25 and 70 on 31 December of the tax year, regardless of whether they earned taxable income during that tax year.

     b. Non – Cyprus tax residents with income subject to tax in Cyprus.

     c. Companies that have been incorporated in Cyprus.

     d. Non – Cyprus tax resident companies with income subject to tax in Cyprus      (except where such companies have been subject to withholding tax in Cyprus pursuant to Article 24 of the Income Tax Law).

2. To ensure that the relevant categories mentioned above submit their annual tax return, there is now a mandatory registration to the Tax Register for persons aged 25 and over and/ or persons who are earning a taxable income. For companies, the registration must occur within 60 days of their incorporation.

3. The deadline for filing tax returns has been changed to 31 July, unless the return concerns a company or is submitted by an audit firm, in which case the deadline is 31 January of the second year following the year of assessment (e.g., for 2026, the deadline will be January 2028).

4. Another important amendment is that there is now an obligation to pay rent for properties located in Cyprus via one of the following methods: Bank Transfer, Debit or Credit card payment, or any other recognised electronic payment method. This amendment was made to ensure greater transparency and proper documentation in rental transactions.

F. Income Tax Law (118(Ι)2002) (the “Income Tax Law”):

1. The corporate income tax increased from 12.5% to 15% in order to align with international tax developments.

2. The definition of a company for tax residency purposes has also been expanded by removing the requirement that “a company must not be tax resident in another state” in order to be considered a Cyprus tax resident, unless a double tax treaty provides otherwise.

3. Any profit made from the disposal of cryptoassetsis now considered as taxable income at a flat rate of 8%, excluding the disposal of cryptoassets that have derived from mining.

4. New income tax brackets have been introduced, as set out in the table below:

5. A further significant reform to the Income Tax Law is the amendments made to the personal tax deductions and/or allowances that individuals are entitled to under these new reforms. Income criteria for eligibility for the new deductions and/or allowances:

• Must not exceed €100,000 for families without children or with 1 or 2 children

• Must not exceed €150,000 for families with 3 or 4 children

• Must not exceed €200,000 for families with 5 or more children

For single-parent households, the relevant annual income threshold is up to €40,000.

The new deductions available:

• €1,000 to each parent for the first child

• €1,250 to each parent for the second child

• €1,500 to each parent for the third and any subsequent children

 The new tax allowances available:

• Up to €2,000 to each parent that can be used for rent or a housing loan for their primary residence

• Up to €1,000 for each parent that can be used for improving the energy efficiency of their primary residence.

6. In addition, any gains that employees and/or directors of a company get arising from Employee Share Schemes will now be taxed at a flat rate of 8%. This flat rate only applies when the gains do not exceed an amount equal to twice the individual’s annual remuneration from the company. Gains derived from crypto-asset transactions will be subject to the 8% income tax flat rate.

G. The Special Contribution for the Defence Law (HNWITaxPlanning,117(I)/2002) (the “SDC Law”):

1. A significant amendment for Cyprus tax-resident companies and Cyprus tax-resident and domiciled individuals, has been introduced in the SDC Law, through the reduction of the special defence contribution on actual dividend distributions from 17% to 5%, for profits earned from 1 January 2026 onwards.

2. The Deemed Dividend Distribution Rule for profits earned after 1 January 2026 has been abolished.

3. The Special Defence Contribution on rental income has been abolished.

PAPAKYRIACOU LLC

20 Stasikratous Street,

Office 104, 1065 Nicosia, Cyprus

T: +357 22256882

info@papakyriacoulaw.com

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