Effective January 1, 2026, Cyprus’s tax landscape underwent its most significant transformation in 20 years. The enactment of a major tax reform and the increase in the basic corporate tax rate from 12.5% to 15% marked the transition to new transparency standards and compliance with OECD global rules (Pillar Two). For international companies and entrepreneurs considering relocation, Cyprus remains one of the most attractive jurisdictions in the EU, but the emphasis has now shifted from nominal presence to real economic substance. Under these circumstances, owning commercial and residential real estate is becoming not just an investment decision, but a fundamental element of tax planning.
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The New Tax Reality of 2026: Why 15% Is Still Beneficial
Increasing the tax rate to 15% brings Cyprus fully into compliance with the global minimum tax system. This eliminates the risk of top-up taxes in parent companies’ countries and strengthens the reputation of Cypriot entities. At the same time, the system retains key advantages that, with proper use of real estate, allow for the effective tax burden to be minimized.
Key changes in the 2026 tax reform for businesses:
- Stamp Duty Abolition: From 2026, the tax on legal documents, including real estate purchase and sale agreements and leases, will be completely abolished. This significantly reduces transaction costs when scaling up office space.
- IP Box and the 3% rate: The intellectual property regime remains in effect. Thanks to the 80% exemption, the effective rate for IT companies in 2026 will be approximately 3%.
- Loss Carry-Forward Extension: The period during which a company can set off past losses against current profits has been extended from 5 to 7 years.
Real estate as the foundation of “Substance” (Economic presence)
In 2026, tax authorities in both Cyprus and foreign countries (as part of the exchange of information) will require proof that a company’s management and control are indeed exercised on the island. Without proven substance, the company risks losing its tax residency status in Cyprus and access to benefits under double tax treaties.
The role of real estate in confirming tax residency
- Physical Office: Owning or leasing a long-term office (not a virtual address) is a primary requirement. Owning commercial real estate demonstrates a business’s long-term commitment and provides a place to store corporate records and employees’ work.
- Executive Housing: If a company’s directors own residential property in Cyprus and spend significant time on the island, this serves as undeniable evidence that the decision-making center is located here.
- 60-day rule: In 2026, the process for obtaining tax residency for individuals under the 60-day rule will be simplified, but owning a home remains a key criterion for demonstrating strong ties to the jurisdiction.
Comparative benefits of owning real estate for business
| Planning parameter | Property Ownership in 2026 | Effect for the taxpayer |
| Stamp duty | 0% (complete abolition from 2026) | No one-time costs when registering rights. |
| Substance | High level (physical asset) | Minimizing the risks of a company being recognized as a shell. |
| Tax deductions | Depreciation of buildings and repair costs | Reduction of the taxable base at a rate of 15%. |
| Non-Dom Status | Confirmation of the center of vital interests | Exemption from SDC on dividends for 17+ years. |
| VAT | Return policy (for commercial properties) | Optimization of company cash flows. |
Tax benefits for relocated employees and owners
Relocating a business to Cyprus in 2026 is inextricably linked to optimizing personal taxes for owners. Purchasing real estate as a primary residence opens access to social and tax benefits.
Personal benefits for 2026:
- 50% income exemption: For employees with a salary over €100,000 per year, an income tax exemption applies for 17 years.
- Increased tax-free minimum: From 2026, the first 22,000 euros of an individual’s annual income will be tax-free.
- Mortgage tax deductions: Interest on a mortgage for a primary residence can now be deducted from taxable income in the amount of up to €2,000.
Real Estate in the Context of IP Box and Innovation
For technology companies using the IP Box regime, real estate serves as a “production site.” According to the Nexus Approach, tax incentives are tied to actual R&D expenses incurred in Cyprus. Having an in-house office where developers work allows for infrastructure costs to be accurately factored into the preferential profit calculation formula, which, at a 15% tax rate in 2026, yields significant savings.
Changes to Capital Gains Tax (CGT)
An important aspect of the 2026 reform is the tightening of rules for “real estate-rich companies.” The threshold for indirect real estate ownership for tax purposes when selling shares has been reduced from 50% to 20%. This means that if your company’s assets consist of more than 20% Cypriot real estate, the sale of shares in such a company will be subject to capital gains tax at a rate of 20%. This must be taken into account when structuring business exit transactions.
FAQ: Frequently Asked Questions
How does purchasing real estate affect Non-Dom status in 2026?
Owning a home is one of the most compelling proofs of your intention to make Cyprus your domicile of choice. It’s crucial for obtaining non-dom status, which exempts you from taxes on dividends, interest, and rent for up to 17 years. In 2026, this status can be extended for two additional five-year periods for a fixed fee of €250,000, making long-term property ownership even more feasible.
Is it possible to write off the costs of purchasing an office from the company’s profit at 15%?
The direct purchase price of the property is not a deductible expense, but the company is entitled to annual depreciation (usually 3% for commercial buildings) and a full write-off of all operating, repair, and maintenance costs. With the tax rate increased to 15%, these deductions become 20% more effective in monetary terms than under the old rate of 12.5%.
Will the 5% VAT exemption for home purchases remain in effect in 2026?
Yes, the preferential 5% VAT rate on the first 130 square meters of residential space (up to €350,000 and up to 190 square meters in total) remains in effect for individuals purchasing real estate as their primary residence. This is a powerful incentive for business owners to relocate their entire families and acquire high-quality assets.
What is the effective tax burden for IT business relocation in 2026?
When using the IP Box regime, the effective corporate tax rate will be approximately 3%. If the company owner is a non-dom tax resident, the tax on distributed dividends will be 0%. Thus, the overall tax burden on businesses remains one of the lowest in the world while fully complying with EU requirements.
Is long-term office leasing a substitute for real estate ownership for Substance?
Renting is permitted, but in 2026, banks and tax authorities will be paying attention to the “quality” of presence. Owning real estate eliminates the risk of a sudden change of address and confirms the presence of real capital in the jurisdiction. Furthermore, given the abolition of stamp duty and the growth of property capitalization, purchasing in 2026 is often more profitable than renting in terms of ROI.
Are you planning a business relocation or asset structuring in Cyprus in 2026? Contact us to find commercial and residential properties that meet Substance’s requirements.
