Tax Reform 2026: A Factual Analysis of Changes for Residents and Businesses

In 2026, Cyprus’s tax system underwent its most significant changes in the past 10 years. The reform was designed to align national legislation with global standards (particularly regarding the minimum corporate tax), as well as to stimulate the domestic real estate market and support households. The changes are systemic and affect virtually every aspect of financial life: from the amount of monthly take-home pay to the cost of completing purchase and sale agreements.

Personal Income Tax: New Tax Rates and Deductions

The most significant change for all employed residents of the island was the long-awaited increase in the tax-free minimum. While previously income tax was exempt on incomes up to €19,500, starting in 2026, this threshold has been raised to €22,000. This decision directly increases the net income of most employees and self-employed professionals.

Updated tax rates from 2026:

In addition to changing the tax scales, the 2026 reform introduced the concept of targeted tax deductions ( Tax Allowances ) to support families and homeowners. Provided that the family’s total annual income does not exceed established limits (for example, up to €90,000 for a couple without children or up to €150,000 for families with many children), residents can reduce their taxable base:

1. For child support: Direct deduction from income in the amount of €1,000 for the 1st child, €1,250 for the 2nd and €1,500 for the 3rd and subsequent children.
2. For mortgages and rent: Owners of a primary residence can receive a deduction of up to €2,000 per year on the amount of mortgage interest paid (provided the loan is serviceable). A similar deduction is available for those who rent their primary residence.

Corporate Taxation: Balancing Rate and Distribution

The era of the “15% corporate tax” has arrived for companies. The increase in the rate from the previous 12.5% is part of a global agreement to ensure a minimum level of taxation for businesses. However, Cypriot legislators have introduced a number of mitigating measures that make operating through a Cypriot company even more transparent and advantageous.

• Abolition of Deemed Dividend Distribution (DDD): Previously, companies were required to distribute 70% of their profits within two years, otherwise they would be subject to a deemed defense tax. Effective January 1, 2026, this complex rule will be completely abolished for profits earned after that date. Companies can now reinvest 100% of their profits without incurring mandatory taxation.
• SDC reduction on dividends: For tax residents and domiciled individuals, the Special Contribution for Defence (SDC) rate on real dividend payments has been reduced from 17% to 5% .
• Loss carry-forward: The period during which a company can set off losses from previous years against current profits has been extended from 5 to 7 years .
• Entertainment expenses: The deductible limit for expenses on entertainment and hosting delegations that can be written off as company expenses has been increased from €17,086 to €30,000 .

These measures effectively make Cyprus one of the most attractive jurisdictions for holding structures in Europe, as the effective dividend tax rate (Corporation Tax 15% + SDC 5%) remains extremely competitive.

Real Estate and Transactions: Radical Simplification

The 2026 reform dealt a serious blow to bureaucratic barriers in the real estate sector. The most significant development was the complete abolition of Stamp Duty . Now, when signing contracts of any amount, buyers and investors no longer need to calculate and pay this duty to the tax office, simplifying and reducing the cost of transactions.

Changes to Capital Gains Tax:

The government has significantly revised its property tax incentives, which is particularly beneficial for private homeowners. Lifetime tax exemptions now include:

• 30,000 euros – general benefit for any type of property (instead of 17,086 euros).
• 50,000 euros – for agricultural land.
• 150,000 euros – when selling the main residence (Primary Residence), provided that it has been owned for more than 5 years (instead of 85,430 euros).

The reform also impacted landlords: Special Defense Contribution ( SDC ) on rental income has been completely abolished . Income from property rentals is now taxed only at the standard income tax rate, making the rental business in Cyprus more transparent.

Administration, audit and control

To make the system fairer, the government has tightened reporting requirements while easing pressure on small businesses.

1. Universal Declaration: From 2026, filing a tax return will be mandatory for all Cyprus tax residents over the age of 25. This also applies to those with an income below €22,000.
2. Audit threshold: For self-employed individuals, the annual income threshold requiring mandatory preparation of audited financial statements has been raised from €70,000 to €120,000 . This represents significant savings on accounting and audit fees for freelancers and small businesses.
3. Rent control: In order to combat the shadow market, in 2026 the obligation to make all rent payments over €500 via bank transfers or electronic systems will be introduced.
4. Withholding Tax: A 5% withholding tax has been introduced on dividends paid to companies resident in low-tax jurisdictions (included in the EU blacklists).

The 2026 tax reform is a strategic move for Cyprus. By raising the corporate tax to 15%, the country has maintained the trust of its international partners, while simultaneously creating an even more favorable environment for private investors and families by abolishing stamp duty, rent tax, and reducing the SDC on dividends. Increasing the tax-exempt minimum to €22,000 and introducing child tax deductions make the island one of the most attractive locations for relocation and life in Europe.