Cyprus Tax Regime

Cyprus operates a residence-based corporate income tax system that has long been positioned as one of the more competitive regimes in the European Union, combined with an extensive treaty network, a participation exemption for dividends and disposals of securities, and a well-regarded intellectual property box. The headline corporate income tax rate rose from 12.5% to 15% with effect from 1 January 2026, aligning Cyprus's statutory rate with the OECD/G20 Pillar Two 15% global minimum, which Cyprus has also transposed into domestic law with effect from 2024. The system remains EU-directive compliant — Parent-Subsidiary, Interest-Royalties and Anti-Tax-Avoidance Directive rules all apply — and Cyprus continues to combine CIT with a separate Special Defence Contribution charge on specified passive income of resident persons.

1.1 Sources

Primary legislation includes the Income Tax Law, the Special Defence Contribution Law, the Assessment and Collection of Taxes Law, the VAT Law, and the law transposing the EU Pillar Two Minimum Taxation Directive.

1.2 Recent developments

The standard corporate income tax rate increased from 12.5% to 15% with effect from 1 January 2026, and from the same date all interest income earned by companies became subject to CIT at 15% rather than being split between CIT (on 'active' interest) and the 17% Special Defence Contribution (on 'passive' interest); companies' interest income is accordingly now exempt from Special Defence Contribution in full. Rental income earned by companies is, from 1 January 2026, likewise subject only to CIT (previously also subject to a 3% Special Defence Contribution add-on). Cyprus implemented the EU Pillar Two Income Inclusion Rule from 31 December 2023 and the Undertaxed Profits Rule from 31 December 2024, together with a Domestic Minimum Top-up Tax (DMTT) practically effective from 31 December 2024, applying to large multinational and domestic groups with consolidated revenue of at least EUR 750 million.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Rates and residence

A company is tax resident in Cyprus if it is managed and controlled in Cyprus, or, for companies incorporated in Cyprus that are not tax resident in any other jurisdiction, on the basis of an incorporation test introduced alongside the management-and-control test. Cyprus tax resident companies are taxed on worldwide income; non-resident companies are taxed on income derived through a Cyprus permanent establishment and on certain other Cyprus-source income. As from 1 January 2026, the standard corporate income tax rate is 15% (12.5% applied up to 31 December 2025). All interest income earned by companies is now taxed under CIT at 15% and is exempt from Special Defence Contribution; royalty income (after deducting allowable expenses) is likewise taxed at 15%. From 1 January 2026, gains from cryptocurrency transactions are subject to income tax at a flat rate of 8%.

2.2 Dividends and participation exemption

Dividend income is, as a general rule, exempt from corporate income tax altogether under the Income Tax Law. Dividends received by a Cyprus tax resident company may nonetheless fall within the scope of the Special Defence Contribution at 5% unless the participation exemption applies (17% remains only for dividends paid out of profits of tax years up to and including 2025); the exemption is available where the paying company does not engage, directly or indirectly, in more than 50% activities leading to passive (investment) income, or where the foreign tax burden on the paying company's income is not significantly lower than the Cyprus tax burden (broadly, an effective rate test benchmarked below the Cyprus CIT rate). Dividends between Cyprus tax resident companies are, in any event, generally exempt from both CIT and SDC. Gains on disposal of qualifying titles — shares, bonds, debentures and similar instruments, but excluding disposals of shares deriving their value from Cyprus immovable property — are wholly exempt from tax, one of the most distinctive and durable features of the Cyprus regime.

2.3 Income determination and deductions

Taxable profits are computed on ordinary accounting profits, adjusted for tax rules, with expenses wholly and exclusively incurred in earning taxable income generally deductible. Notional interest deduction (NID) is available on new equity introduced into a Cyprus company on or after 1 January 2015 and used in the business, computed by reference to a reference interest rate linked to the yield on the relevant sovereign bond of the country where the funds are employed, subject to a cap of 80% of taxable profit before the NID. Capital allowances apply to plant, machinery, industrial buildings and qualifying intangible assets; intellectual property amortisation and the IP box regime (section 2.9) apply to qualifying IP income and expenditure.

2.4 Interest limitation

Cyprus applies the EU Anti-Tax-Avoidance Directive interest limitation rule: net borrowing costs exceeding the higher of 30% of tax EBITDA or EUR 3 million are non-deductible in the year incurred, with carryforward of denied interest and unused capacity for up to five years, a group-ratio escape clause, and an exclusion for standalone entities and long-term public infrastructure project loans satisfying EU criteria.

2.5 Losses

Trading losses may be carried forward and set off against future taxable profits for up to five years following the year in which the loss was incurred; there is no time limit on losses incurred prior to specified legacy rules, and no loss carryback is available. Losses of a Cyprus tax resident group company may be surrendered to another Cyprus tax resident (or, in specified EU/EEA cases, non-resident) group company under group relief (section 2.6).

2.6 Group taxation

Group relief allows current-year trading losses to be surrendered between Cyprus tax resident companies that are members of the same group for the whole of the relevant tax year, generally defined as a 75% direct or indirect parent-subsidiary relationship or common 75% ownership by another company. Since 2015, group relief has also been extended, subject to conditions, to losses of a subsidiary resident in another EU member state that has exhausted the possibilities of using the loss in its own jurisdiction or in that of any intermediate EU holding company. Newly incorporated companies and companies joining or leaving a group part-way through the tax year are subject to apportionment rules.

2.7 Controlled foreign companies

Cyprus applies CFC rules with effect from 1 January 2019, implementing the EU Anti-Tax-Avoidance Directive: non-distributed profits of a foreign company or permanent establishment directly or indirectly controlled (more than 50%) by a Cyprus tax resident company, arising from non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage, may be attributed to and taxed in the hands of the Cyprus parent where the foreign entity's actual corporate tax paid is less than half of the tax that would have been charged under Cyprus rules. Exemptions apply for CFCs with low accounting profits or profit margins, and a substance-based carve-out applies where the CFC carries on a substantive economic activity supported by staff, equipment, assets and premises.

2.8 Transfer pricing

Cyprus applies the arm's-length principle consistent with the OECD Transfer Pricing Guidelines, with formal transfer pricing documentation rules (master file, local file) applying to Cyprus tax resident persons and permanent establishments of non-resident persons engaging in controlled transactions above prescribed materiality thresholds, and Country-by-Country Reporting for groups with consolidated revenue of EUR 750 million or more. Advance tax rulings and advance pricing agreements are available from the Cyprus Tax Department for a fee, including for back-to-back financing and intra-group arrangements.

2.9 Incentives — the IP box

Cyprus's intellectual property regime allows an effective 80% deemed deduction of qualifying profits derived from qualifying intangible assets (computed under a nexus-fraction approach linking the benefit to the proportion of qualifying research and development expenditure incurred by the taxpayer itself), so that qualifying IP profits can be taxed at an effective rate of 3% (being 20% of the 15% standard rate) after the deduction. Qualifying assets are limited to patents, copyrighted software, and other IP assets that are non-obvious, useful and novel where the taxpayer's annual gross revenue from all IP does not exceed EUR 7.5 million (EUR 50 million for a group). Additional incentives include accelerated capital allowances for certain plant, machinery and energy-efficient investments, and a notional interest deduction on new equity as described in section 2.3.

2.10 Pillar Two

Cyprus, as an EU member state, has transposed the EU Pillar Two Minimum Taxation Directive with the Qualified Income Inclusion Rule practically effective from 2024 (31 December 2023) and the Qualified Undertaxed Profits Rule practically effective from 2025 (31 December 2024), applying to constituent entities of multinational and large-scale domestic groups with consolidated group revenue of at least EUR 750 million in at least two of the preceding four fiscal years. A Cyprus Domestic Minimum Top-up Tax (DMTT), practically effective from 31 December 2024, applies in priority to the IIR and UTPR, with the same push-down mechanics for CFC, head office and hybrid entity taxes and full alignment with the Transitional CbCR Safe Harbour and initial-phase-of-international-activity exclusion. Investment funds and pension funds are generally outside the scope of Pillar Two.

2.11 Branch income and reorganisations

A Cyprus permanent establishment of a non-resident company is taxed at the standard 15% rate on profits attributable to the branch under arm's-length principles; there is no separate branch profits or remittance tax on repatriation to the foreign head office. Mergers, divisions, transfers of assets and share exchanges — both domestic and cross-border within the EU — can be effected on a tax-neutral basis under Cyprus's reorganisation provisions implementing the EU Merger Directive, preserving cost base, deferring gain recognition and permitting the transfer of tax losses and capital allowances between the parties, subject to a bona fide commercial purpose test and anti-abuse safeguards.

3.1 Residence and rates

Individuals are Cyprus tax resident if present in Cyprus for more than 183 days in a tax year, or, under the '60-day rule' introduced in 2017, for at least 60 days where the individual does not spend more than 183 days in any other single state, is not tax resident elsewhere, maintains a permanent home or rented property in Cyprus, and carries on business, is employed, or holds a directorship in Cyprus during the tax year. Resident individuals are taxed on worldwide income; non-residents on Cyprus-source income only. For 2026, personal income tax rates run progressively from 0% on the first EUR 22,000, then 20% on income from EUR 22,001 to EUR 32,000, 25% from EUR 32,001 to EUR 42,000, 30% from EUR 42,001 to EUR 72,000 and a top rate of 35% on income above EUR 72,000.

3.2 Non-domiciled regime and investment income

Cyprus's non-domicile regime, in force since 2015, exempts individuals who are Cyprus tax resident but not Cyprus domiciled from the Special Defence Contribution on dividends, 'passive' interest and rental income for up to seventeen years, making Cyprus a favoured relocation destination for internationally mobile individuals with significant investment income. Gains on disposal of securities (shares, bonds and similar instruments) are generally exempt from tax for individuals in the same way as for companies, other than gains attributable to Cyprus immovable property, which are instead subject to capital gains tax at 20% on the gain (with indexation relief and lifetime exemptions for principal private residences and other qualifying disposals).

3.3 Social security and payroll

Employees and employers each contribute social insurance at 8.8% of insurable earnings up to an annual ceiling, with self-employed persons contributing at a comparable combined rate on notional or actual income depending on occupational category; a General Healthcare System (GESY) contribution of 2.65% (employee) and 2.9% (employer) applies on total emoluments without the social insurance ceiling. Employers withhold PAYE monthly and remit together with social insurance and GESY contributions to the Tax Department and Social Insurance Services respectively.

3.4 Inbound individuals

Cyprus offers enhanced personal tax incentives for new resident employees: a 50% exemption on employment income exceeding EUR 55,000 per year for individuals who were not Cyprus tax resident for a defined look-back period before starting employment in Cyprus, available for up to seventeen years, alongside a lower-threshold 20% exemption (capped in absolute terms) for other qualifying relocating employees for shorter periods. There is no net wealth tax, no inheritance or estate tax, and no general gift tax in Cyprus, though transfers of immovable property attract nominal transfer fees payable to the Land Registry.

Cyprus imposes no withholding tax on dividends, interest or royalties paid to non-resident recipients under domestic law (other than royalties in respect of intellectual property used within Cyprus, subject to treaty and EU directive relief), reflecting Cyprus's long-standing policy of encouraging outbound investment structuring through Cyprus holding and financing companies. The EU Parent-Subsidiary and Interest-Royalties Directives eliminate withholding on qualifying intra-EU flows in any event, and Cyprus's treaty network of more than 65 conventions further reduces or eliminates withholding on inbound royalties and interest sourced from treaty partners. Domestic-facing dividends, interest and rents paid to Cyprus tax resident individuals or companies may instead attract Special Defence Contribution as described in sections 2.2 and 3.2.

Because Cyprus does not withhold on outbound dividends or interest, and only withholds on royalties for intellectual property used within Cyprus, Cyprus treaties are typically invoked to protect against foreign withholding on inbound income received by a Cyprus company (dividends, interest and royalties sourced from treaty partners) rather than to reduce a Cyprus-side charge, and unilateral or treaty foreign tax credit relief is available in the ordinary way against Cyprus tax on such income.

5.1 General anti-abuse and hybrids

Cyprus applies a general anti-abuse rule implementing the EU Anti-Tax-Avoidance Directive, disregarding for tax purposes an arrangement or series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. Hybrid mismatch rules neutralise deduction/non-inclusion and double-deduction outcomes arising from hybrid financial instruments, hybrid entities, and permanent establishment mismatches, whether the mismatch arises in relation to associated enterprises, a head office and its PE, or a structured arrangement.

5.2 Exit taxation and disclosure

Exit taxation applies to unrealised gains where a company transfers assets, its tax residence, or the business of a permanent establishment out of Cyprus in a manner that results in Cyprus losing the right to tax those assets, with deferred payment in instalments over five years available for transfers within the EU/EEA. Cyprus has implemented DAC6 mandatory disclosure for reportable cross-border arrangements and DAC7 platform-reporting obligations, applies the principal purpose test under the multilateral instrument to treaty benefit claims, and requires beneficial ownership register filings for companies and other legal entities incorporated in Cyprus.

6.1 VAT

VAT is levied at a standard rate of 19%, with reduced rates of 9% (hotel accommodation, restaurant and catering services, domestic passenger transport) and 5% (basic foodstuffs, pharmaceuticals, books, and — subject to conditions and value caps — the acquisition or construction of a first main residence), and a zero rate for exports and specified international transport and supply. Registration is mandatory once taxable turnover exceeds EUR 15,600 in the preceding twelve months, and Cyprus applies the standard EU intra-Community and One-Stop-Shop rules for cross-border digital and goods supplies. VAT returns are generally filed quarterly, with payment due by the 10th day of the second month following the quarter-end.

6.2 Transaction, payroll and other taxes

Transfer fees are payable to the Land Registry on the transfer of Cyprus immovable property not subject to VAT, on a sliding scale by reference to the property's market value; a reduced or nil rate applies where the transfer is instead subject to VAT. There is no net wealth tax, no estate or inheritance tax, and no general capital duty on the incorporation of companies, though nominal registrar fees and share capital duty of 0.6% apply on the authorised share capital of a Cyprus company. Immovable property owners pay a municipal property tax set by individual local authorities rather than a national annual property tax; stamp duty applies to certain categories of contracts and agreements at nominal ad valorem or fixed rates.

7.1 Filing, assessment and audit

The tax year is the calendar year. Corporate tax returns are filed electronically, generally within fifteen months of the tax year-end, with provisional tax based on estimated current-year profits payable in two instalments (by 31 July and 31 December) and any balance settled by 1 August of the following year to avoid interest. The Tax Department administers assessments and conducts audits on a risk basis; the general assessment limitation period is six years from the end of the relevant tax year, extended to twelve years in cases of fraud or wilful default.

7.2 Rulings, appeals and penalties

Advance tax rulings are available from the Tax Department on a fee-paying basis, covering matters such as the notional interest deduction, the IP box, tax residence, and group relief and reorganisation questions. Appeals against assessments proceed first by objection to the Tax Department, then to the Tax Tribunal, and ultimately to the Administrative Court and Supreme Court on points of law; mutual agreement procedure and EU arbitration are available for cross-border double taxation disputes. Interest on late payments accrues at the officially prescribed rate (revised periodically), and administrative penalties apply for late filing, late payment and understated provisional tax, with reduced penalties available for voluntary disclosure made before an audit commences.

Underpayment of provisional tax below 75% of the final tax liability triggers an additional charge on the shortfall, so groups with volatile earnings commonly revise their second instalment estimate by 31 December to avoid this exposure; the balance of tax is separately due by 1 August regardless of the provisional tax position.

9.1 Entity choice

The private limited liability company is the standard vehicle, with no statutory minimum share capital requirement for private companies, at least one director and a company secretary, and straightforward incorporation through the Registrar of Companies. Public limited liability companies suit capital markets and regulated financial services activity. Branches of foreign companies are taxed at 15% on Cyprus-attributable profits with no branch remittance tax. International trusts and Cyprus investment firms are also widely used in fund and wealth-structuring contexts, benefiting from the same participation exemption and securities-gain exemption available to companies.

9.2 Structuring and incentives

Cyprus's combination of the securities-gain exemption, the participation exemption for dividends, the absence of outbound withholding tax, the notional interest deduction on new equity, and the intellectual property box has sustained its position as a preferred jurisdiction for EU and international holding, financing and IP structures notwithstanding the 2026 rate increase to 15%. Structuring should account for the CFC rules, the ATAD interest limitation, hybrid mismatch rules, and — for groups within the EUR 750 million Pillar Two threshold — the Cyprus DMTT, which now collects any shortfall below the 15% minimum locally rather than ceding that revenue to a foreign IIR or UTPR jurisdiction.

9.3 Worked effective-rate illustration

A Cyprus finance and IP holding company earns EBITDA of EUR 1,200,000, comprising EUR 800,000 of ordinary trading and financing profit and EUR 400,000 of qualifying IP profit computed under the nexus-fraction approach. The IP profit benefits from an 80% deemed deduction, so only 20% × 400,000 = EUR 80,000 of the IP profit is taxable; CIT at 15% on that amount is EUR 12,000, an effective rate on the IP profit of 12,000 / 400,000 = 3.0%. The remaining EUR 800,000 of ordinary profit is taxed in full at 15%, giving CIT of EUR 120,000. Total CIT payable is 12,000 + 120,000 = EUR 132,000 on total EBITDA of EUR 1,200,000, a blended effective rate of 132,000 / 1,200,000 = 11.0%. If the company instead earned all EUR 1,200,000 as ordinary trading profit with no qualifying IP, CIT would be 15% × 1,200,000 = EUR 180,000, an effective rate of 15.0% — illustrating the roughly 4-percentage-point benefit the IP box delivers when a third of profit qualifies.

9.4 Compliance

Expect electronic corporate and VAT filing, provisional tax instalments with a revision opportunity before year-end, monthly PAYE/GESY/social insurance remittance, transfer pricing documentation for in-scope controlled transactions, DAC6 monitoring for cross-border arrangements, and beneficial ownership register filings. Large groups within the Pillar Two threshold should budget for DMTT/IIR/UTPR registration, data collection and minimum-tax returns even where transitional safe harbours reduce the top-up to zero in early years.