The Cyprus House of Representatives enacted the Cyprus Tax Reform on 22 December 2025. The Cyprus Tax Reform amends six core tax laws and applies to tax years commencing 1 January 2026 and onwards. The framework could affect tax residency, income tax, corporate tax, capital gains, and tax compliance.
WHY THIS MATTERS
The Cyprus Tax Reform introduces significant changes affecting both employers and globally mobile employees. For organisations, the increased corporate income tax rate, revised personal income tax bands, and stricter compliance requirements may result in higher operational costs and necessitate updates to payroll and tax reporting systems.
The revised 60-day tax residency rule for individuals and the new tax residency rule for companies may alter cross-border structuring and expatriate planning. Enhanced transfer pricing thresholds, expanded anti-avoidance rules, and specific tax treatments for crypto-assets and share-based incentives could affect compliance, risk assessment, and compensation planning. Mobile employees may experience changes in tax obligations, eligibility for deductions, and reporting requirements, particularly concerning benefits, retirement schemes, and the disposal of crypto-assets.
Key Highlights
Corporate and personal income tax1
- Corporate income tax rate increased from 12.5 percent to 15 percent.
- Personal tax-exempt threshold raised from EUR 19,500 to EUR 22,000 and personal income tax bands adjusted favorably for taxpayers.
- Taxation of ex-gratia retirement payments, early retirement schemes, and termination benefits clarified, amounts over EUR 200,000 taxed at a flat rate of 20 percent and respective payments not tax deductible for employers.
Tax residency rules
- 60-day rule for individuals revised, no longer requires non-tax residency elsewhere.
- Companies incorporated under Cyprus law are now tax residents, unless treaties provide otherwise.
Share-based incentives and crypto-assets
- Approved share-option benefits for employees/directors taxed at a flat rate of 8 percent (up to twice the annual remuneration in year of vesting, capped at EUR 1 million per decade), any excess taxed under general rules.
- Profits from disposal of crypto-assets2 taxed at a flat rate of 8 percent; losses can only offset same-year crypto gains.
Deductions and allowances
- Expanded deductions for insurance, housing, energy efficiency and dependent children.
- Family unit-based deductions introduced, subject to family income level and timely filing.
Capital gains, dividend and interest taxation1,3,4
- Capital Gains Tax Law updated, “property-rich” company threshold lowered to 20 percent from 50 percent, unless treaties provide otherwise.
- Exemption thresholds for property disposals increased.
- Deemed Dividend Distribution provisions abolished for profits earned from 2026 onwards, disguised dividend provisions introduced.
- Special Defence Contribution tax rate on dividends decreased from 17 percent to 5 percent. Non-doms continue to be exempt.
- Interest income for individuals is subject only to Special Defence Contribution at 17 percent, while interest income for companies is subject only to corporate tax at 15 percent.
- The non-domicile regime period can now be extended for 2 consecutive 5-year periods (5+5 years), subject to conditions.
Compliance and penalties5,6
- Mandatory tax return filings extended, registration thresholds clarified.
- Penalties for non-compliance significantly increased.
- Electronic payment requirements for rents.
- Tax Commissioner empowered to seal premises for tax violations.
Transfer pricing1 and anti-avoidance
- Local file thresholds significantly increased for goods, financing, and other transactions. Minimum documentation requirement continues as before.
- General Anti-Avoidance Rule extended to individuals and applies under the Special Contribution for the Defence Law.3
Other provisions
- Stamp Duty Law7 abolished from 2026, prior documents remain subject to previous rules.
- New rules for directors’ liability, double tax relief claims, and pledging of shares for unpaid taxes.
KPMG INSIGHTS
In light of the changes, organisations and entities may wish to consider the following:
- Organisations could review cross-border employee assignments, compensation structures, and payroll systems to adhere to the new tax rates and reporting obligations.
- Employers could update policies regarding share-based incentives, retirement schemes, and benefits to reflect new tax treatments.
- Globally mobile individuals might assess their tax residency status and eligibility for deductions, especially for family unit-based allowances.
- Companies could strengthen transfer pricing documentation and anti-avoidance controls to mitigate risk.
If assignees and/or their program managers have questions about the scope of the update, its application, potential impacts, or next steps, they should consult with their usual tax professional or a member of the GMS tax team with KPMG in Cyprus (see the Contacts section).
ENDNOTES:
1 Cy Law (In Greek), “The Income Tax Law of 2002 (118(I)/2002).”
2 As interpreted in accordance with the Markets in Crypto-Assets Regulation of the European Union (Regulation (EU) 2023/1114)
3 Cy Law (In Greek), “The Special Contribution for the Defence Law of 2002 (117(I)/2002).”
4 Cy Law (In Greek), “The Capital Gains Tax Law of 1980 (52/1980).”
5 Cy Law (In Greek), “The Assessment and Collection of Taxes Law of 1978 (4/1978).”
6 Cy Law (In Greek), “The Collection of Taxes Law of 1962.”
7 Cy Law (In Greek), “The Stamp Duty Law of 1963.”
Related Resource:
For a detailed analysis of the updates, see “The Cyprus Tax Reform,” a report by KPMG in Cyprus.
Tax Services in Cyprus
George Markides Board Member, Head of Tax Services george.markides@kpmg.com.cy | Katia Papanicolaou Board Member, Direct Tax Services Katerina.Papanicolaou@kpmg.com.cy |
Costas Markides Board Member, International Tax services costas.markides@kpmg.com.cy | Michael Halios Board Member, International Tax services michael.halios@kpmg.com.cy |
Stelios Stylianou Board Member, Direct Tax Services stylianous@kpmg.com.cy | Michalis Loizides Board Member, Tax Services michalis.loizides@kpmg.com.cy |
Contacts
Disclaimer
The information contained in this newsletter was submitted by the KPMG International member firm in Cyprus.
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