Tax Reform 2026 – What Has Changed
Tax Reform 2026 – What Has Changed
On 1 January 2026, the most comprehensive tax reform in Cyprus in over 20 years came into effect. The key change: Corporate tax increased from 12.5% to 15%. Here is what has changed and what remains the same.
Corporate Tax: 12.5% → 15%
The increase was implemented under the EU directive on global minimum taxation (Pillar Two / GloBE). For companies with annual revenue below EUR 750 million, Pillar Two has no direct impact – the 15% applies as the standard Cypriot tax rate.
What Remains Unchanged
- Non-Dom Status: 17 years SDC exemption on dividends and interest – unchanged
- Participation Exemption: 100% tax-free dividends and capital gains – unchanged
- 0% Withholding Tax: On dividends, interest and royalties paid abroad – unchanged
- IP Box Regime: Effective tax rate ~3% – unchanged
- NID: Notional Interest Deduction – unchanged
- 60-Day Rule: Tax residency – unchanged
- No Inheritance Tax: Unchanged
New Regulations
New Regulations
Alongside the rate increase, several further measures were introduced: digital services taxation, enhanced transfer pricing documentation requirements, and stricter CFC rules aligned with the EU Anti-Tax Avoidance Directive (ATAD). These provisions primarily affect large multinational groups and have minimal impact on SME clients of CMC.
Background: Why the Increase?
The increase from 12.5% to 15% was a consequence of the EU directive on global minimum taxation (Pillar Two / GloBE). This directive stipulates that multinationals with annual revenue exceeding EUR 750 million must pay at least 15% tax in every country. Cyprus proactively raised its rate to ensure compliance and pre-empt potential "top-up taxes" by other states.
Impact on Client Groups
SMEs and Self-Employed: For companies with annual revenue below EUR 750 million – virtually all CMC clients – Pillar Two has no direct impact. Combined with Non-Dom status (0% on dividends), the effective total tax rate remains at a maximum of 15%.
IP Box Users: The effective rate for qualifying IP profits is approx. 3% – still among the lowest in the EU.
Holding Companies: The Participation Exemption remains unchanged: dividends and capital gains from subsidiaries continue to be 100% tax-free.
Pension Recipients: The 5% flat tax on foreign pension income remains unchanged.
Timeline
The reform was passed by the Cypriot Parliament in June 2025 and took effect on 1 January 2026. Fiscal years beginning before 1 January 2026 remain subject to the old 12.5% rate. Provisional tax for 2026 must be calculated at 15%.
Conclusion
Despite the increase to 15%, Cyprus remains one of the most attractive tax locations in the EU. The Non-Dom status, Participation Exemption and IP Box Regime continue to make Cyprus a first-class jurisdiction for international entrepreneurs.
Why was the corporate tax rate increased?
The increase from 12.5% to 15% was a consequence of the EU directive on global minimum taxation (Pillar Two). Cyprus proactively adjusted the rate to pre-empt potential "top-up taxes" by other states.
Does Pillar Two affect my company?
Pillar Two only applies to multinational groups with annual revenue exceeding EUR 750 million. For SMEs and sole proprietors – virtually all CMC clients – there is no change to the tax burden.
Does the Non-Dom status remain?
Yes. The Non-Dom status is unaffected by the tax reform. Dividends remain 100% tax-free for Non-Dom holders. The IP Box, Participation Exemption and NID also remain unchanged.
When did the tax reform take effect?
The reform was passed by the Cypriot Parliament in June 2025 and took effect on 1 January 2026.
Do I need to change my structure as an SME?
Generally not. The key advantages (Non-Dom, Participation Exemption, DTA network) remain unchanged. CMC recommends an individual review in a free initial consultation.
How does the reform affect holding structures?
The Participation Exemption remains 100% intact. Dividends and capital gains from qualifying participations continue to be fully tax-exempt. Holding structures remain fully attractive.