Cyprus tax reform 2025: A strategic shift for businesses and individuals
Marios Palesis & Stephanos Charalambous
Cyprus
by Marios Palesis and Stephanos Charalambous
Tax reform towards a competitive and sustainable economy
The Republic of Cyprus is entering a new phase of fiscal adjustment aimed at strengthening international competitiveness, attracting investment, and aligning with global tax developments. The proposed reform, currently under public consultation and expected to take effect in 2026, introduces substantial changes for both legal entities and individuals.
Legal entities – streamlining and green growth incentives
At the heart of the reform lies an increase of the corporate income tax rate from 12.5% to 15%, aligning Cyprus with global Organisation for Economic Co-operation and Development (OECD) standards under Pillar II. Despite this adjustment, Cyprus retains its key tax advantages: the Notional Interest Deduction (NID), the IP Box regime, and the capital gains tax exemption on the sale of titles (i.e. shares).
The abolition of the Deemed Dividend Distribution (DDD) rules marks a particularly positive development for businesses with high levels of retained earnings, offering increased flexibility and reduced compliance costs. In parallel, a new, more flexible corporate reorganisation framework is expected to support restructurings and spin-offs, especially in family-owned businesses.
The reform places strong emphasis on sustainability, as it introduces enhanced capital allowances for green investments and also extends the carry-forward period for tax losses to 10 years. These measures are designed to foster innovation and long-term investment in environmentally responsible projects.
Individuals – relief and family support
The new personal income tax regime significantly strengthens Cyprus’s appeal to individual taxpayers. The tax-free threshold will increase to EUR 20,500 – one of the highest in the European Union, offering meaningful relief to employees and middle-income earners. New tax credits are also being introduced for families, green home renovations, and first-time homebuyers, supporting social cohesion and promoting environmental responsibility.
The 50% income tax exemption for employees earning over EUR 55,000 on their first employment in Cyprus remains in place, while the tax residency framework is enhanced through the introduction of a “centre of vital interests” test, complementing the existing 183-day and 60-day rules. In addition, the dividend tax subject to Special Defence Contribution (SDC) will be reduced from 17% to 5%, and the SDC on rental income will be abolished – simplifying compliance and improving investment returns.
The non-domiciled (non-dom) regime will be preserved, although an annual charge is being considered. A revised framework for employee stock options and other benefits in kind is also under review.
Next steps: Predictability and reform continuity
The reform is currently under consultation and is expected to be finalised by the end of 2025, and go into effect in 2026. The legislation’s intention is clear: to preserve Cyprus’s status as a competitive, transparent, and sustainable business centre within the EU and beyond. For investors, businesses, and individuals alike, the upcoming changes represent a predictable, business-friendly, and globally aligned tax landscape.
XLNC member firm Kinanis Law FirmNicosia, CyprusT: +357 22 55 88 88
Marios Palesis, Partner at Kinanis LLC, is a qualified accountant and a Fellow member of Association of Certified Chartered Accountants (FCCA), as well as a member of the Institute of Certified Public Accountants of Cyprus, a member of Advanced Diploma in International Taxation (ADIT), and an International Tax Affiliate of the Chartered Institute of Taxation (CIOT). Contact Marios.
Stephanos Charalambous, Manager at Kinanis LLC, holds a master’s degree in International Business and Finance, as well as an advanced diploma in International Taxation (ADIT). He is a qualified Chartered Accountant, member of the Institute of Chartered Accountants of England and Wales (ICAEW) and the Institute of Certified Public Accountants of Cyprus (ICPAC), and has prior work experience at KPMG and Nexia. He is an International Tax Affiliate of the Chartered Institute of Taxation (CIOT). Contact Stephanos.
