Corporation tax in Cyprus in 2026: 15% rate and what has changed

Main change: 15% instead of 12.5% ​​from January 2026

On 22 December 2025, the Cyprus Parliament approved a tax reform package and from 1 January 2026 the basic corporate tax rate increased from 12.5% ​​to 15%. This is the most noticeable change in the last decade: the 12.5% ​​rate has been in place since 2013 and has been part of the island's recognizable brand as a low-tax EU jurisdiction.

The reason for the increase is not the budget deficit, but an international obligation. Cyprus has implemented the OECD global minimum tax (the so-called Pillar Two), which sets an effective rate of no less than 15% for large international groups with consolidated revenues of EUR 750 million. In order not to create a gap between large groups and the rest of the business, Cyprus raised the base rate for all companies to 15%.

It is important to understand: 15% is a new starting point, and not the final tax burden. The effective rate for most structures remains noticeably lower due to the benefits and exemptions discussed below. It is most convenient to understand how this works in practice for a specific structure in conjunction with the material about company registration in Cyprus.

Why the rate was raised: Pillar Two in simple words

In order not to view the increase as arbitrary, it is useful to understand the logic of Pillar Two. This is an initiative of the OECD and G20, supported by the European Union through a separate directive. Its goal is to stop the race to the bottom of jurisdictions as countries compete with lower and lower rates, and to fix the minimum effective income tax rate at 15% for the largest multinational groups.

The mechanics are as follows: if a group pays less than 15% effectively in one country, the difference (top-up tax) is paid in another country of the group. For Cyprus, as an EU member, this meant an obligation to incorporate the rule into national legislation.

• Who does Pillar Two technically concern: groups with consolidated revenues of 750 million euros per year.
• What Cyprus did: Instead of a complex system of surcharges for large groups, it raised the base rate to 15% for everyone, simplifying administration.
• Bottom line for medium-sized businesses: a small Cypriot company is not subject to Pillar Two directly, but pays the same 15% at the new base rate.

That is, the formal addressee of the rule is the giants, and the practical effect is a flat rate of 15% for the entire corporate sector of the island.

What has NOT changed: the benefits for which people choose Cyprus

The most common mistake is to read the headline about 15% and decide that Cyprus is no longer profitable. This is wrong. The reform upped the ante but left intact the framework of benefits on which the jurisdiction's attractiveness rests.

• Profit from the sale of securities (titles) - stocks, bonds, shares - completely exempt from corporate tax. This is the cornerstone of holding structures.
• Participation exemption for dividends. Dividends received by a Cyprus company from subsidiaries and other companies are exempt from tax if the participation conditions are met.
• Notional Interest Deduction (NID) - a deduction for new equity capital, which can significantly reduce the effective rate.
• IP Box - a regime for income from intellectual property with an effective rate of about 2.5%, which we discuss in a separate material about IP Box in Cyprus.
• Wide network of double tax treaties - details in the guide Cyprus tax treaties.

That is why, even with a rate of 15%, Cyprus remains one of the most rational corporate jurisdictions in the European Union - not due to one low figure, but due to the entire design.

Rate table 2026: corporation tax, dividends, capital gains, VAT, SDC

Let's collect the key rates for 2026 in one table - this is a working guideline from which all calculations proceed. Please note the difference between corporation tax (paid by a company on profits) and SDC (paid by resident individuals on passive income).

This table shows the essence of the reform: the basic corporate rate has increased, but the taxation of profit distributions (dividends) has become softer, and the securities exemption has been retained in full.

Tax residency of a company: management and control and incorporation test

In order for a company to pay tax in Cyprus at the rate of 15% and benefit from benefits and treaties, it must be a Cypriot tax resident. Since 2026, the residency rule has been clarified - now it is double.

• Management and control test. Classic criterion: a company is a resident of Cyprus if its central management and control is exercised on the island. The tax office looks at where strategic decisions are actually made - where board meetings are held, where directors live and vote.
• Test of incorporation. Since 2026, an additional criterion has been established: a company registered in Cyprus is considered a tax resident by default, even if management is formally transferred outside the island.
• Clause on agreements. If a company is recognized as a resident of another country under an applicable double tax treaty, the incorporation test does not make it a Cypriot resident - the treaty prevails.

Practical conclusion: the real substance (directors, office, decisions on the island) is still critical - both for residency and for protecting the structure. We will analyze the topic more deeply in the material about tax residence in Cyprus.

How to calculate tax in 2026: NID, losses and groups - an expert's view

Here we will analyze the tools that turn the nominal 15% into the actual load below. It is at this level that it is decided whether the structure is beneficial.

• Notional Interest Deduction (NID). If a company is financed with new equity capital (contributed since 2015), it is entitled to deduct the notional interest on this capital from taxable profits. The deduction is limited to 80% of the gain on new capital, but can reduce the effective rate down to around 3%.
• Carry forward of losses - 7 years. The reform extended the period for carrying forward tax losses from 5 to 7 years. This is especially valuable for startups and capital-intensive projects that experience negative returns during their first years.
• Group offset of losses (group relief). Companies in the same group (ownership share of at least 75% for the entire tax year) can transfer losses to each other - but first the company must offset its own transferred losses.
• R&D super-deduction. The increased 120% deduction for qualifying research and development expenses is extended through 2030.

The addition of these instruments gives what they choose Cyprus for: the rate on paper is 15%, and a well-assembled structure keeps the real load significantly lower.

VAT and indirect taxes: 19% separately from income tax

A common confusion for newcomers is to confuse corporate tax and VAT. These are two different taxes with different logic. A corporate tax of 15% is taken from the company’s profit at the end of the year. VAT is an indirect tax on turnover that the company collects from customers and transfers to the state.

VAT parameters in Cyprus in 2026:

• The standard rate is 19%. Applies to most goods and services.
• Preferential rates 9% and 5% - for certain categories (part of services, products, medicines, books and other items).
• Zero rate and exemptions - for export, a number of financial and other transactions.

For a company conducting real business with clients in the EU and beyond, correct work with VAT is a separate layer of administration: registration, filing declarations, OSS/MOSS for digital services. We provide a detailed analysis in a separate guide to VAT in Cyprus. It is important to note here: the increase in corporate tax to 15% has nothing to do with VAT; the VAT rate did not change with the reform.

Nominal and effective rate: what is the difference

When they say “tax in Cyprus is 15%”, they mean the nominal (base) rate. But the company pays not from revenue, but from taxable profit - after deducting expenses, benefits and exemptions. Therefore, the effective rate - what actually goes to the state as a percentage of profits - is usually below 15% for a well-constructed structure.

What reduces the effective rate:

• Exempt income - profits from the sale of securities and qualified dividends are simply not included in the base.
• NID - conditional deduction on equity capital reduces taxable income.
• IP Box - income from intellectual property is taxed at an effective rate of about 2.5%.
• Carrying forward losses from previous years - The seven-year window smoothes out profitable years.

A simple example of logic: if a significant part of a company's income is profit from the sale of shares or qualified dividends, this part is not taxed at all, and the overall effective rate for the company is significantly lower than the nominal 15%. Therefore, comparing jurisdictions based on the base rate alone is a mistake: you need to calculate the effective load for a specific business model.

Who benefits from Cyprus even at a rate of 15%

The rate increase did not cancel the scenarios in which Cyprus remains one of the most rational choices in the European Union. Let's look at who the jurisdiction works especially well for.

• Holding companies. The exemption for profits from the sale of shares and the participation exemption for dividends make Cyprus a classic holding platform - a 15% corporate tax does not break this logic.
• IT and technology companies. The IP Box regime, with an effective rate of around 2.5% on intellectual property income, remains one of the best in the EU.
• Groups with an international structure. A wide network of tax treaties and EU membership provide access to directives and protection against double taxation.
• Relocant entrepreneurs. The combination of “company 15% + non-dom owner with 0% SDC on dividends” gives an overall low burden on the entire path of profit from the company to the pocket.

Cyprus has ceased to be the jurisdiction of the “lowest figure”, but remains the jurisdiction of the “most profitable design” - and for most international businesses this is more important than one line with a rate.

Common mistakes when working with a Cyprus company

In practice, it is clear that businesses lose money and time not on exotic things, but on the same typical mistakes. Let's list the main ones so you can bypass them.

• Ignoring substance. The company is registered in Cyprus, but is actually managed from another country - and the foreign tax authorities recognize it as its resident, depriving it of Cypriot benefits.
• Corporation tax and SDC confusion. These are different taxes with different payers; counting them “in one pile” leads to an incorrect assessment of the load.
• Underestimation of transitional dividend rules. Profits until 2026 upon distribution may be subject to SDC at the old rate of 17% - this needs to be planned.
• Delays in VAT. VAT operates according to its own calendar of declarations; late penalties are assessed separately from income tax.
• Calculation at nominal rate. Making a decision on jurisdiction based on the 15% figure without calculating the effective load for your model means making the wrong comparison.

Most of these errors are eliminated at the design stage of the structure, and not after the fact, when the tax has already been assessed.

Dividends, SDC and cancellation of deemed dividend distribution

Here the reform worked not to a disadvantage, but to a plus - and this is rarely written about in the headlines. Corporate tax has increased, but taxation of dividends for resident individuals has become noticeably softer.

• The SDC for dividends has been reduced from 17% to 5%. The Special Defense Contribution paid by Cypriot residents on dividends from profits earned since 2026 has fallen by more than three times.
• The deemed dividend distribution has been cancelled. Previously, if a company did not distribute profits, the state considered part of the retained profits as paid out and subjected it to SDC. From 2026, this rule for profits earned from that year onwards is abolished - no distribution, no collection.
• Dividends between companies if the conditions for participation are met, they are still released - the holding chains work as they did.

For profits accrued before 31 December 2025, the transition rules retain the old SDC rate of 17% when distributed within the specified period - this is a point that is worth calculating in advance. Separately, it is worth studying who SDC does not concern at all - in the material about non-dom status in Cyprus.

Non-dom: why many investors pay 0% on dividends

SDC is a tax on passive income (dividends, interest, rent), but is only paid by Cypriot tax residents with domiciled status. This is where the main fork in the road for foreign entrepreneurs appears.

Non-domiciled (non-dom) status is available to those who have become a tax resident of Cyprus, but do not have a domicile of origin on the island. Such a person is exempt from SDC for up to 17 years from the year in which he became a Cypriot resident.

• Dividends: non-dom pays 0% SDC (instead of 5% for domiciles).
• Percentage: also exempt from SDC for non-dom.
• What remains: the health system contribution (GHS/GESY) at its small rate with a ceiling is not an SDC, it is paid by all residents.

The result is the combination for which the structure is being built: the company pays a corporate tax of 15% on profits, and the non-dom owner receives dividends virtually without additional tax on distribution. This is why raising the base rate to 15% turned out to be less painful for many investors than it sounds in the news.

Bottom line: what does a 15% rate mean for your business?

Let's draw the line. From January 1, 2026, corporate tax in Cyprus is 15% instead of the previous 12.5%. This is a consequence of the OECD's global minimum tax, rather than a local fiscal campaign, and affects the base rate for all companies on the island.

But reform is not only about promotion. In the 2026 package, Cyprus reduced the SDC on dividends from 17% to 5%, abolished deemed dividend distribution, extended the carry forward of losses to seven years, retained the exemption for profits from the sale of securities, participation exemption, NID and IP Box. For the non-dom owner, the distribution of profits has become even more profitable than before.

The practical conclusion is simple: you need to look not at one line with the rate, but at the effective load for your business model and at the correctness of the structure - residency, substance, transitional rules. You should always check the current rates and forms on the official portal Government of Cyprus (gov.cy), and the calculations for a specific task should be trusted to specialists.