We set out below a brief overview of the Cyprus income tax regime, as applicable following the tax reform effective from 1 January 2026.
1. Scope of taxation
Under the Cyprus income tax regime, taxation is imposed:
(a) on the worldwide income of all Cyprus tax residents; and
(b) on income derived in Cyprus by any non-Cyprus tax residents.
2. Tax residency
(a) Companies
A company is considered to be a Cyprus tax resident company if:
(i) it is incorporated in Cyprus, unless an applicable double tax treaty provides otherwise (a company that has transferred its registered office or seat to Cyprus is deemed to have been incorporated in Cyprus); or
(ii) it is not incorporated in Cyprus (and has not transferred its registered office or seat to Cyprus), but its management and control are exercised in Cyprus.
(b) Individuals
(i) An individual is considered a Cyprus tax resident if physically present in Cyprus for a period or periods exceeding, in aggregate, 183 days during the calendar year.
(ii) Alternatively, and subject to certain conditions, an individual may be considered a Cyprus tax resident under the 60-day rule provided he/she spends at least 60 days in Cyprus during the tax year and satisfies additional qualifying criteria.
3. Key provisions of Cyprus taxation
(a) Corporate income tax
The corporate income tax rate in Cyprus is 15%.
(b) Capital gains on securities
Profits from the disposal of securities are generally exempt from tax in Cyprus.
(c) Dividends
(i) Dividend income is exempt from income tax.
(ii) However, dividend income may be subject to Special Defence Contribution (“SDC”) as follows:
(A) Dividends received by Cyprus tax resident companies:
- are exempt from SDC when received from another Cyprus tax resident company;
- are generally exempt from SDC when received from a non-Cyprus tax resident company, unless both of the following conditions are met, in which case a 5% SDC applies
1) paying company derives, directly or indirectly, more than 50% of its income from investment activities; and
2) the foreign tax burden of the payer is substantially lower than the Cyprus tax burden of the recipient
(B) Dividends received by Cyprus tax resident individuals who are also Cyprus domiciled are subject to 5% SDC. Transitional provisions may apply to pre-existing dividend income, in which case a 17% SDC rate may apply.
(d) Disguised dividend concept
The concept of disguised dividends may apply to Cyprus tax resident and domiciled individual shareholders (whether direct or indirect) of Cyprus tax resident companies, whereby the private use of company assets or transfers below market value are treated as deemed dividends. In such cases, a 10% SDC may apply.
(e) Interest income
(i) As a general rule, interest received by a Cyprus tax resident company is subject to corporate income tax at 15%.
(ii) Interest received by a Cyprus tax resident and Cyprus domiciled individual is subject to 17% SDC, subject to a reduced 3% SDC rate for interest derived from Cyprus or EU government savings certificates and development bonds, corporate bonds listed on a recognised stock exchange, and bonds or securities issued by Cyprus or foreign state organisations or local authorities, provided that such instruments are listed on a recognised stock exchange.
(f) Domicile of individuals
(i) Individuals who are not Cyprus-domiciled are exempt from SDC, even if they are Cyprus tax residents.
(ii) An individual is considered domiciled in Cyprus for SDC purposes if:
- he/she has a domicile of origin in Cyprus under the Wills and Succession Law (Cap. 195), subject to certain exceptions; or
- he/she has been a Cyprus tax resident for at least 17 of the last 20 tax years.
The 17-year rule may be deferred for up to two additional five-year periods upon payment of a EUR 250,000 fee per extension period.
(g) General Heath System
A contribution of 2.65% applies on dividend and interest income of Cyprus tax resident individuals, irrespective of domicile status.
(h) Crypto asset gains
Gains from the disposal, exchange, gifting, or use of crypto assets are subject to income tax at a flat rate of 8% (excluding mining activities).
(i) Notional Interest Deduction (NID):
(i) applies to new equity introduced into a Cyprus tax resident company and used in the business for taxable activities.
(ii) the notional interest rate is based on the yield of the 10-year government bond of the relevant jurisdiction in the previous tax year, increased by 5%.
(iii) the deduction is capped at 80% of taxable profits arising from the use of such equity, and any unused NID cannot be carried forward.
(j) IP Box regime:
(i) provides for an 80% deduction on qualifying profits derived from qualifying intangible assets.
(ii) results in an effective tax rate of approximately 3%.
(iii) applies to qualifying intellectual property, including patents and software, in accordance with the nexus approach.
(k) Withholding taxes
(i) As a general rule, no withholding tax applies on dividends and interest paid to non-Cyprus tax residents.
(ii) Exceptions:
- dividends and interest paid to associated companies established in an EU Blacklisted Jurisdiction (“BLJ”) are subject to 17% withholding tax;
- dividends paid to associated companies established in a Low-Tax Jurisdiction (“LTJ”) (i.e. jurisdictions with a corporate tax rate below 7.5%) are subject to 5% withholding tax;
- interest paid to associated companies established in an LTJ is not subject to withholding tax, however, such interest is not deductible for corporate income tax purposes.
For the purposes of the above, an “associated company” means a company directly or indirectly related to the Cyprus tax resident company through control, participation or common ownership.
Antis Triantafyllides & Sons LLC