Cyprus rewrote most of its business structuring rules with effect from January 1, 2026, the corporate rate and the residence test among them. A holding company kept its exemptions for dividends and for gains on securities. A group that pays an associated company in a low-tax country didn’t, because such payments now carry a defence contribution or lose their deduction.
What the January 1, 2026 reform changed
The reform laws went into the Official Gazette on December 31, 2025, one day before most of them took effect for tax year 2026. Companies pay more on their profits as a result. A shareholder who is resident and domiciled in Cyprus, on the other hand, pays less on dividends than before.
| Rule | Until 2025 | From 2026 |
| Corporate income tax rate | 12.5% | 15% |
| Carry-forward of tax losses | 5 years | 7 years |
| Stamp duty on documents | Charged | Repealed |
| Defence contribution (the Cyprus tax on dividend and interest income) on dividends paid to resident, domiciled individuals | 17% | 5% on profits from 2026. Dividends from older profits keep the old rate for six years |
| Deemed distribution of profits a company keeps | Applied to each year’s profits | Applies only to profits up to tax year 2025 |
| Extra 20% deduction for research and development costs | Due to end after 2026 | Extended to 2030 |
Holding company income
A Cyprus company receives dividends exempt from income tax unless the payer can deduct the dividend for its own foreign tax. Profits from the disposal of securities are exempt too. Neither exemption requires a minimum holding.
A foreign dividend can still carry the defence contribution in one case. The paying company must earn mostly investment income and bear a foreign tax burden below half the Cyprus burden. Article 3 of the defence contribution law sets those conditions.
The main incentives came through the reform unchanged. Under the IP box, a company deducts 80% of the qualifying profit from eligible intellectual property. A company that raises new equity may also deduct a notional interest on that capital, as if it had borrowed the money. This deduction can’t exceed 80% of the taxable income the new equity produces.
Paying dividends, interest and royalties abroad
A company pays dividends and interest to a non-resident with no withholding tax, whoever that recipient is. Royalties for rights used within Cyprus are the main exception. Payments to an associated company in a jurisdiction on the EU list of non-cooperative jurisdictions have carried extra tax since December 31, 2022. The 2026 reform extended the same treatment. Since January 1, 2026, it has also reached payments to associated companies in third countries with a corporate rate below half of the Cyprus rate.
| Payment to an associated company | Jurisdiction on the EU list | Low-tax jurisdiction |
| Dividends | 17% defence contribution | 5% defence contribution |
| Interest | 17% defence contribution | Not deductible for the payer |
| Royalties | 10% withholding tax | Not deductible for the payer |
Tax residence and treaties
Management and control decides residence. If the directors take their decisions in Cyprus, the company is resident on the island. Since 2026, incorporation in Cyprus has made a company resident as well, unless a treaty provides otherwise. Before the reform, incorporation alone counted only when no other state claimed the company.
Two states can claim one company. Where that happens, the treaty between them settles the question through tie-breaker rules, as the article on corporate residence explains. Cyprus has 68 such treaties. The Ministry of Finance keeps the full table.
Large groups and the global minimum tax
Law 151(I)/2024 brought the EU minimum tax directive into Cyprus law. It reaches groups with consolidated turnover of at least €750 million. A Cyprus parent of such a group has paid top-up tax on its low-taxed foreign subsidiaries under the income inclusion rule since December 31, 2023.
Foreign-parented groups came in a year later. Their Cyprus member pays any top-up tax on its Cyprus profits locally, for financial years that begin on or after December 31, 2024. The undertaxed profits rule applies from the same date and collects any top-up tax that no parent has paid. The BEPS article explains the position of US-parented groups.
Company registration, owners and VAT
The Department of Registrar of Companies and Intellectual Property registers a new company and, since March 16, 2021, its beneficial owners as well. Sales then carry VAT at a standard 19%, the rate in force since January 13, 2014.
The public can’t consult that register anymore. The Registrar closed it to the public on November 28, 2022. The EU Court of Justice had just ruled in joined cases C-37/20 and C-601/20. Authorities still consult the register. A bank or other obliged entity under anti-money-laundering law may too, once it has filed a solemn declaration tied to customer due diligence.
Owners who relocate to Cyprus
A resident who isn’t domiciled in Cyprus pays no defence contribution at all on dividends or interest. Domicile is a question of time. After 17 of the last 20 years as a tax resident, the law deems a person domiciled and the exemption ends.
Since the 2025 amendment, a person in that position has had another option. He or she can elect to pay a flat €50,000 a year instead of the contribution, for five consecutive tax years at a time. A person can make the election twice.
FAQ
Does a Cyprus company still pay the €350 annual levy?
No, and it hasn’t since 2024. Law 25(I)/2024 removed the levy from the Companies Law altogether. The one exception concerns the past, because a company that never paid for some year between 2011 and 2023 still owes that year’s €350.
Does deemed distribution still apply after the reform?
Only for tax years 2024 and 2025. The law treats a resident company as having distributed 70% of its profit in each of those years, whether or not it declared a dividend. Resident, domiciled shareholders then pay the defence contribution on their share of that notional dividend. Profits earned from 2026 onward are never deemed distributed.
IBSA Cyprus branch
The International Business Structuring Association (IBSA) opened its Cyprus branch with a launch evening in Limassol. Taxatelier Partners chaired the branch under Demis Ioannou. Its committee set a yearly program of events for local members. Every IBSA member could attend, wherever they were based.
Branch committee
- Ulyana Holovenko
- Demis Ioannou, chair
- Richard Melton
- Neofytos Neofytou
- Chrystalla Neophytou
- Petros Petrides
- Marina Pittalis
- Costas Savva
- Christos Theophilou
- Stavroula Vrasida
- Andreas Yiasemides
Upcoming branch events
There are currently no upcoming chapter events. Check back soon.
Past branch events
Taxatelier Partners, the firm that chaired the branch, hosted the January 2017 workshop at its own offices.
| Date | City | Event | Venue |
| June 20, 2017 | Limassol | Brexit and the relocation of UK companies to Cyprus | Londa Beach Hotel |
| January 27, 2017 | Nicosia | Workshop on the international growth of SME clients, based on the Polycon case | Taxatelier |
| January 26, 2017 | Nicosia | International tax planning in the current environment | Centre of Visual Arts and Research |
| October 20, 2016 | Limassol | Launch of the Cyprus branch | Londa Beach Hotel |
The Cyprus launch
Roy Saunders, IBSA’s founder and chairman, invited guests together with Dmitry Zapol of IFS Consultants and Demis Ioannou of Taxatelier. Guests met as a structured discussion group. Prestige Group hosted networking drinks afterward to mark the launch.
IBSA’s founders believed that structuring a company now called for many disciplines and close local knowledge. Advisers increasingly had to work alongside trusted colleagues in other countries. The association set out to connect that community so members could share knowledge and win new business.
Speakers examined global disclosure rules for beneficial owners and Russian legislation on controlled foreign companies (CFCs). An SME case study followed. Speakers then discussed Brexit’s effect on UK property investment. The evening ended with Cyprus tax planning for non-doms and the appeal of investment funds.