Filenews 23 February 2026 - by Eleftheria Paizanou
- Dividends, corporate tax, discounts and incentives – All the changes that have taken place
- Tax increases and reductions – The new balance for companies
The tax reform also brought significant changes for businesses, which from January 1, 2026 are included in the new tax regime approved by the Parliament last December. From the January payroll, the differentiation in employees' earnings has already begun to be reflected, due to the granting of tax deductions, the change in tax scales and the increase of the tax-free allowance to €22,000.
The amendments were also felt by a large number of businesses, as the aim of the reform was to create a fairer, modern and competitive tax framework for the business environment.
Balancing formula
For legal entities, a balancing formula between tax increases and reductions was applied. Specifically, the corporate tax was increased to 15% from 12.5% previously, while at the same time the tax on dividends was reduced. At the same time, the deemed distribution of dividends and stamp duties were abolished, while increased discounts were granted for donations and sponsorships.
Through these changes, the aim is to strengthen the competitiveness of Cyprus and attract new foreign investments. Although initially reservations were expressed by affected bodies – especially in relation to the increase in corporate tax – the Ministry of Finance has repeatedly stated that there is no cause for concern, as fluctuations in the individual rates lead to an overall balance of the tax regime.
As the Minister of Finance, Makis Keravnos, recently stated, no business operating in Cyprus intends to move to another country due to the increase in corporate tax. It is estimated, in fact, that more than 30,000 small Cypriot businesses will benefit from the abolition or reduction of the defense tax.
Extensive changes and the need for adaptation
The tax reform brought far-reaching upheavals to the country's tax system. The report emphasizes the changes concerning businesses, which are numerous. Several training seminars have already been held for professionals and businesses, with the aim of smoothly assimilating the new data.
THE DIFFERENCES AT A GLANCE
In summary, the changes are as follows:
- Reduction of the tax on real dividends from 17% to 5%
- Abolition of the deemed distribution of dividends
- Increase in corporate tax from 12.5% to 15%
- Abolition of stamp duty
- Stock options: special rate of 8% up to €1 million. per decade
- Crypto-assets: independent taxation of 8% on net profit
- Discount of up to €50,000 per tax year for donations and sponsorships to approved cultural institutions
- First listing of shares on a recognized stock exchange: expense discount up to €300,000
- Super discount for employers who pay ATA, equal to twice the additional ATA paid within the year
- Research and Development Spending: extension of the 20% super-deduction until 2030
- Green capital expenditure: extending accelerated depreciation until 2030
- Agricultural and livestock production: accelerated capital rebates of 25%
- Extension of the loss carry-forward period to seven years
- Significant increase in the limits for keeping a Cyprus controlled transaction file
How business organisations assess the reform
Business organizations proceeded to evaluate the tax reform, especially for the provisions concerning businesses. The General Manager of OEB, Michalis Antoniou, said that the tax reform has brought the long-imposed and expected convergence of the tax burden between foreign and Cypriot companies, without negatively affecting the attractiveness of the country's tax framework.
"Despite the increase from 12.5% to 15% in corporate taxation, the abolition of the deemed distribution of profits and the reduction of the defense tax from 17% to 5% maintains growth momentum, encourages reinvestment and pushes the country higher in the global indicators for doing business," he added.
He also said that a notable aspect of the reform is the strengthening of the state's tax collection capacity and the formation of powerful tools made available to the Tax Commissioner to ensure tax compliance.
"This development had the firm support of OEB and healthy business in general, as tax evasion is a scourge that does not only affect public revenues – at the same time it creates conditions of unfair competition at the expense of our members and all businessmen who honour their tax obligations," he added.
According to Mr. Antoniou, the practical implementation of the new legislative framework will obviously highlight gaps and weaknesses. "It is the duty of OEB to codify the necessary adjustments and to promote them for consultation with the Registrar and the competent Ministry of Finance, with whom OEB maintains an open and productive channel of communication based on mutual institutional respect," he concluded.
THE POSITION OF THE KEBE
For his part, the Secretary General of the CCCI, Philokypros Roussounidis, said that the tax reform for businesses is assessed as a necessary and largely positive step towards the modernization of the tax framework, in a period of increased international challenges and intense competition between economies.
"The adaptation of Cyprus to the new international data and the obligations arising from the global tax environment was inevitable. It is important that, despite the increases in individual rates, the country's overall competitiveness is maintained through targeted incentives, tax deductions and measures that enhance innovation, investment and real economic activity," he noted.
He also said that the correct implementation of the changes, the simplicity of the procedures and the provision of clear guidance to businesses are crucial.
According to the General Secretary of the CCCI, tax stability, predictability and administrative efficiency remain key conditions for attracting and retaining investments. "As a business community, we believe that continuous dialogue between the state and businesses is necessary so that the reform acts as a lever of growth and not as a brake on the competitiveness of the Cypriot economy," he concluded.
IN DETAIL, THE MAIN AMENDMENTS TO THE NEW LEGAL FRAMEWORK
The following is a detailed presentation of the amendments made to the new legal framework, with a codification of the changes as they result from the tax reform.
Amendments to the Income Tax Act
Tax residence of natural and legal persons
In detail, the amendments to the Income Tax Law are the following:
A "resident of the Republic" is considered a person under the 183-day rule, as previously applied. At the same time, a person is also considered a resident under the 60-day rule, regardless of whether or not he is a tax resident of another state.
A company is considered a resident of the Republic on the basis of the exercise of its control and management. In addition, if it has been incorporated in the Republic in accordance with the Companies Law, it is also considered a resident, unless a double taxation treaty provides otherwise. A company that transfers its registered office or registered office to the Republic is deemed to have been incorporated in the Republic. The condition that the company is not resident in another country is deleted.
Special way of taxing employment and retirement benefits
A special way of taxing the benefit granted as an incentive for accepting employment or appointment to an office will be applied, including the benefit provided before the start of employment or appointment to office.
Also, the gratuity granted gratuitously upon retirement, early retirement, termination or early termination of an employment contract or appointment to an office will also be subject to special taxation.
This special mode of taxation includes the amounts from early retirement plans of employees, compensation for termination of employment or appointment to office, as well as any other benefit under an employment contract or appointment to an office, or under a collective agreement, regulations or any other conditions governing employment or appointment to office.
Exemptions from pension and welfare fund income
Exemption from taxation is provided on the income of pension or welfare funds established in the Republic or in another member state. Funds operating for pension schemes or for the provision of an annual lifetime annuity are also exempt.
The same treatment applies to interest income from a pension fund, a local government, a state agency and a general government entity. On the other hand, interest income of a legal person governed by public law engaged in an economic activity, as well as interest acquired by collective investment projects of an open or closed type, are not exempt from tax.
It is noted that interest acquired by an open-ended or closed-ended collective investment plan is not considered to be interest exempt from the imposition of income tax.
From 1 January 2031 onwards, the dividend relating to a profit from the redemption of a unit or share in an open-ended or closed-ended collective investment plan established in the form of a company, reduced by any amount of capital gains tax paid, is exempt from tax. The redemption of a unit or share in a collective investment plan does not constitute a disposal of a security.
Deductible expenses
The granting of an additional 20% discount for scientific research and development expenses is extended until the tax year 2030.
A deduction is granted for expenses for the acquisition or development of an intangible asset with an indefinite useful economic life, with the expense being distributed over 20 years. A discount is provided to a company for the costs of the first listing of its shares on a recognized stock exchange, up to the amount of €300,000.
The deduction is granted under Regulation (EU) 2023/2831 on de minimis aid, per rolling three-year period and per single enterprise, to the extent that no damage is caused. In case of an unspent amount, it can be transferred and granted as a discount in the next two years, provided that there is an amount available.
An additional (notional) discount equal to twice the additional ATA paid within the year compared to the immediately previous year, is granted, based on the Permanent Agreement on the ATA. No deduction is granted for salaries on which no contributions have been paid to the health insurance fund, while contributions that are regulated by a court decision are excluded from the restriction.
Fixed assets
The granting of a discount for capital expenditure to improve the energy efficiency of buildings is extended until the tax year 2030.
An increased discount rate of 25% is granted for capital expenditure, after the deduction of any subsidy, which concerns machinery and facilities – excluding irrigation – which are used for agricultural or livestock production.
The maximum deduction amount for business entertainment expenses is increased from €10,000 to €30,000. No deduction is granted for interest related to the acquisition of shares of a company that is resident or incorporated in a non-cooperative jurisdiction, nor for gratuitous payments to employees and officials.
Deductions for losses
The possibility of carrying forward a tax loss is extended from five to seven years. For the purposes of offsetting losses of a group of companies, the applicant company may offset its profits against losses assigned to it, after having previously offset losses of previous years.
Life insurance companies
The special way of taxing long-term life insurance companies, which provided for the payment of a minimum tax at a rate of up to 1.5% on gross premiums, in cases of zero or lower tax, is abolished.
Profits from trading in cryptoassets
Profits from the disposal of crypto-assets are subject to taxation at a rate of 8%. Losses are offset only against profits from the disposal of crypto-assets of the same tax year and are not transferred or assigned.
Gratuitous payments
A 20% tax is introduced on gratuitous compensation of employees when they exceed €200,000. Amounts up to €200,000 remain tax-free.
Exit taxation
In cases of transfer of assets or tax residence of a company from a third country, the initial tax value is the value set by the third country, unless this does not reflect the market value.
* The detailed amendments to the law on the Special Contribution for Defense in the Republic are as follows:
– Extension of the non-dom regime (Alternative method of payment of extraordinary defense contribution).
-Abolition of the deemed distribution of profits for the years from 2026 onwards.
-Taxation of dividends at a rate of 5%.
-Disguised distribution of dividends.
-Abolition from 1/1/2026 of the contribution for defense in rental income.
- The changes made to the Law on Capital Gains Taxation are as follows:
From January 1, 2026, €50,000 will be exempt from capital gains tax. The amounts from the disposal of agricultural land by a farmer, €150,000 the amounts from the disposal of the main residence, while the general exemption is €30,000. In the event that a person benefited either partially or fully from the exemptions that were in force until 31/12/2025, for disposals made from 1/1/2026 onwards, he/she will be able to benefit from an additional exemption amount, until the revised exemption amounts are completed.
- Maintaining the tax exemption of shares listed on a regulated stock exchange. In the case of shares listed on a non-regulated stock exchange market, the exemption applies, provided that the total value of the total disposals made during the year does not cumulatively exceed €50,000.
- Disposal of the main residence (restructuring, bankruptcy, insolvency and sale. Revision of the value of the main residence to €450,000 (from €350,000), so that an exemption from the payment of tax is applied in the case of its disposal in the context of loan restructuring, bankruptcy or insolvency proceedings, sale, liquidation of a company.
If the market value of the shares is represented and substantially derived from the market value of the immovable property, the proceeds of the disposal of the shares are considered to be the proceeds of the disposal of the shares, as declared by the parties, adjusted to the market value of any other assets and liabilities. The Superintendent reserves the power to contest the declaration of the product to be made available by the parties, whether they are third parties or related parties.
The changes in the Law on Tax Assessment and Collection are the following:From the 1st of the year, the submission of tax returns has companies that have been incorporated in Cyprus or that are tax resident of Cyprus, regardless of income as companies that have been incorporated in Cyprus and are not tax resident of Cyprus. A company that has been subject to withholding tax (under Article 24 of the Income Tax Law) for the entire income under the Income Tax Law is not obliged to submit a tax return.
Documents that, directly or indirectly, justify any amounts or information of the tax return, are kept for 6 years that count from the later date, i.e. the deadline for the submission of the initial or revised tax return as well as the actual date of submission of the initial or revised tax return.
Documents relating to the tax year 2020 and onwards must be kept for 6 years. The documents relating to the tax year 2019 should have been kept until December 31, 2025. The possibility of submitting a revised declaration within three years does not automatically change the time limit for storing documents, i.e. if no revised declaration is submitted, the retention obligation remains six years from the deadline or the actual submission of the initial declaration, whichever is later.
A company is obliged to register in the Tax Register within 60 days from the date of establishment and registration in the Republic.
Employers' obligations
Employers submit a list of all employees and pensioners they have within a tax year (including those who do not have an obligation to withhold tax), by March 31 of the following year.
The Registrar may require an employer to submit to him, within a reasonable period of time, a list of the employees' details within 6 years (instead of 5 years) from the tax year. For tax years up to the year 2024, if the details of the employees are not available, then the Registrar may determine alternative data for the identification of the employee for the submission of the required statement.
Data from banks
A licensed credit institution must submit to the Registrar a detailed statement with information on each person to whom it credited interest (without invoking professional or banking secrecy). Extension of the Registrar's ability to request from a bank and a credit acquiring company, data and information (open, closed or joint account) for a spouse or first-degree relative, a person under tax control (banking secrecy is bypassed). Extension of the obligation of Financial Institutions to provide data on tax residents of Cyprus to the Registrar.
Closure of businesses - Rents and increase in fines
Suspension of business operation and sealing of business premises for non-submission of declarations, for debts of €20,000 and non-issuance of invoices and receipts.
From July 1, 2026, rents will be paid through bank transfers, debit and credit cards or other recognized electronic means.
Increase of the administrative fine to €6,000 from €4,000 to accept credit cards.
Criminal liability for failure to pay tax will lie with the executive director, board members, any other official who has duties related to the company's financial management. A director of a company shall continue to be liable for omissions in compliance of the company made during his term of office, even if he has been deleted from the register of directors and secretaries, at the time of administrative or judicial proceedings for such omissions. In case the director of a company submits a notification of a change of official to the Registrar of Companies late for his retroactive deletion from the register of directors and secretaries, the retroactive deletion may be valid for a maximum time of twelve months before the submission of the notification.
- The changes in the Law on Tax Collection are as follows:
A share freeze for an amount of tax due exceeding €100,000 outstanding for more than 30 calendar days. The Registrar sends a written notice to the taxpayer notifying his intention to block the shares.
The taxpayer may, within 30 days, submit his positions. The Registrar submits a note to the Registrar of Companies for the registration of a commitment on the taxpayer's shares (the shares cannot be transferred). The taxpayer may apply to the Court for the annulment of the freezing entry if he pays the tax due or if another collection measure is applied (freezing of a bank account, confiscation of movable property, memo on immovable property). If the Court cancels the freezing, the Registrar informs, within 15 days, the Registrar of Companies of the withdrawal of the freezing registration.
From the 1st of the year, the Law on Stamps was abolished. Documents drawn up and signed by even one party until 31/12/2025 will normally be subject to stamp duty. The payment of a fee based on the Legislation of other Ministries / Services / Departments with the use of stamps can continue to be made until new relevant regulations are made by the competent authorities.
