Preparing for Cyprus’ 2026 Tax Reform: Practical Steps for Cross‑Border Structures









 
In October 2025, Cyprus’s Ministry of Finance submitted a comprehensive tax reform package to Parliament. The government intends to modernise the country’s fiscal framework and align it with global standards such as the OECD’s Pillar II rules. If approved by lawmakers by the end of 2025, most provisions will apply from 1 January 2026. Companies operating through Cyprus holding or operating entities have a short window to understand the proposed changes and adjust their structures accordingly. 
 
Key measures in the reform proposals 
     
  •  Corporate income tax increase: 
    The headline corporate tax rate would rise from 12.5 per cent to 15 per cent. PwC notes that the existing corporate tax base – including deductions for foreign branch profits, notional interest deduction, the intellectual‑property box, and participation exemption – is expected to be retained.
     
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  •  Dividend taxation: 
    The current “deemed dividend distribution” regime would be repealed, and the special defence contribution (SDC) on actual dividends paid to Cyprus‑resident individuals would fall from 17 per cent to 5 per cent. SDC on rental income would also be abolished.
     
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  •  Loss carry‑forward period: 
    Tax losses could be carried forward for seven years instead of five, providing companies more time to offset future profits. Discussions also include a possible further extension of the carry‑forward period for specific categories.
     
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  •  Cryptoassets: 
    A new flat tax of eight per cent would apply to gains from the disposal of cryptoassets when those gains are treated as revenue in nature.
     
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  •  Additional proposals: 
    The reform includes other measures such as increasing the tax‑free amount on voluntary retirement schemes, removing any property tax or business levy during an initial phase, and reducing the levy on non‑domiciled individuals to €50 000 for five years. The package also introduces mechanisms to combat tax evasion. Updated rules for payments to low-tax and blacklisted jurisdictions, with BLJ already in effect and LTJ applying from 01.01.2026.
     
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Practical preparation for companies
 The proposals will affect Cyprus’s holding and operating structures in several ways. Organisations should undertake a thorough assessment and develop action plans before the rules enter into force. Key areas of focus include: 

 
     
  •  Model effective tax rates: 
    Update financial models to reflect the 15 per cent corporate tax rate and the new eight per cent crypto tax. Assess how the changes alter group tax expense, cash flows, and profitability under different scenarios.
     
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  •  Review dividend policies: 
    The abolition of deemed dividend distribution and the reduction of SDC on actual dividends may affect distribution timing and amounts. Groups should evaluate whether to declare dividends before the reform’s effective date and reconsider holding‑company locations.
     
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  •  Optimise loss utilisation: 
    With a longer carry‑forward period, companies could revisit the timing of loss recognition and the structuring of intragroup transactions. Careful planning may maximise the use of accumulated losses over the extended seven‑year horizon.
     
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  •  Evaluate rental income streams: 
    As SDC on rental income is abolished, rental earnings will be taxed solely under income or corporate tax. Groups with significant property portfolios should revisit ownership and leasing arrangements accordingly. 
     
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  •  Document crypto transactions: 
    The new tax on crypto gains requires accurate record‑keeping. Businesses dealing with digital assets need clear policies on classification, valuation, and tracking to substantiate tax treatment.
     
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  •  Transitional dividend rules: 
    Profits earned up to 31 December 2025 remain subject to the existing deemed‑dividend distribution regime and the 17 per cent SDC rate. Understanding this distinction is essential when deciding whether to declare dividends before the new rules take effect.
     
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  •  Defensive measures for low‑tax jurisdictions: 
    Under separate legislation, dividend payments to associated companies in low‑tax jurisdictions will incur a 17 per cent withholding tax, and interest or royalty payments will not be deductible for corporate tax purposes. Mapping intra-group payment chains, screening counterparties, and reviewing and adjusting intercompany agreements and payment flows to ensure that recipient entities have adequate economic substance can help maintain compliance.
     
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  •  Analyse payment flows: 
    The proposals may influence distributions to low‑tax or blacklisted jurisdictions. Companies should map intra‑group payment chains and consider adjustments to maintain compliance with anti‑abuse provisions.
     
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  •  Update governance and documentation: 
    Boards will need to oversee tax planning and compliance. Review internal policies, documentation, and reporting frameworks to ensure they align with the forthcoming rules and prepare for potential audits. 
     
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Final considerations
 The forthcoming reform represents the most significant overhaul of Cyprus’s tax system in years. Its provisions bring the country in line with international requirements while offering targeted incentives for growth and innovation. Organisations that invest time now in scenario analysis, structural adjustments, and strengthened governance will manage the transition better and benefit from the reformed fiscal landscape once it comes into force in January 2026.