Cyprus Corporate Tax Guide 2026: Rates, Exemptions & Planning
Complete guide to Cyprus corporate income tax at 15% (from 2026): taxable vs. exempt income, trading loss relief, group relief, Pillar Two impact, and the key deductions that keep effective rates well below the headline rate.
The Cyprus Corporate Tax Framework
Cyprus corporate income tax (CIT) is levied on the worldwide income of Cyprus tax-resident companies and on the Cyprus-source income of non-resident companies with a permanent establishment in Cyprus. A company is tax-resident in Cyprus if it is incorporated in Cyprus and managed and controlled from Cyprus — the management and control test requires that a majority of the board of directors exercise their decision-making functions from Cyprus.
The CIT rate is 15% for accounting periods beginning on or after 1 January 2026 (increased from 12.5% under the 2026 tax reform). Despite the rate increase, Cyprus remains one of the lowest CIT jurisdictions in the EU, with effective rates typically well below the headline figure due to a wide range of legitimate deductions and exemptions.
Exempt Income
Cyprus has an extensive list of income items that are fully exempt from CIT, which significantly reduces the effective tax burden for holding companies, trading companies, and investment vehicles.
Key CIT Exemptions
| Income Type | Exempt? | Conditions / Notes |
|---|---|---|
| Dividend income (from subsidiaries) | Yes | Anti-avoidance: not from passive foreign income or jurisdictions with effective tax < 6.25% |
| Capital gains on disposal of securities | Yes | Shares, bonds, debentures, options, and other qualifying 'titles' — wide definition |
| Gains from forex (FX) transactions | Yes | Unless from FX trading as main business |
| Income from permanent establishments abroad | Yes (election) | Can elect to exempt PE profits — watch loss offset implications |
| Interest income (non-trading) | Exempt from CIT; subject to SDC | SDC at 30% (domiciled) or 0% (non-dom) |
Deductible Expenses
Business expenses are deductible to the extent they are incurred wholly and exclusively for the production of taxable income. Cyprus follows a broad deductibility approach, with explicit statutory provisions for key categories.
- Staff costs (salaries, employer social insurance, pension contributions)
- Rent, utilities, and occupancy costs
- Depreciation on fixed assets (tax depreciation rates prescribed by law)
- Interest on loans used for business purposes — subject to EBITDA-based limitation (30% of EBITDA for amounts exceeding €3 million)
- R&D expenditure (120% super-deduction for qualifying expenditure)
- Notional Interest Deduction (NID) on new equity capital
- IP Box deduction (80% of qualifying IP income)
- Payments to third parties at arm's length (subject to transfer pricing rules for related-party transactions)
Trading Loss Relief
Trading losses can be set off against other income of the same company in the same tax year, and any remaining losses can be carried forward indefinitely against future profits of the same trade. Cyprus does not allow loss carry-back.
Group relief is available where a Cyprus tax-resident company (or a Cyprus permanent establishment of an EU-resident company) can surrender losses to another group member. A group requires a 75% holding directly or through Cyprus-resident entities.
Pillar Two: What It Means for Cyprus Companies
The EU Minimum Tax Directive requires Cyprus to apply a Qualified Domestic Minimum Top-Up Tax (QDMTT) to ensure that large multinational groups (consolidated revenue ≥ €750 million in at least two of the prior four years) pay a minimum 15% effective tax rate on Cyprus-source profits.
For companies below the €750 million threshold — which is the vast majority of Cyprus companies — Pillar Two is irrelevant as a direct tax obligation. However, companies that are part of large international groups should assess their position carefully, as the QDMTT can apply even where the Cyprus parent is not large if the global group exceeds the threshold.
Pillar Two Threshold
Pillar Two (QDMTT) applies to groups with consolidated revenue ≥ €750 million. Most SMEs, startups, and mid-market businesses in Cyprus are unaffected.
Frequently Asked Questions
What is the Cyprus corporate tax rate in 2026?
15%, increased from 12.5% for accounting periods beginning on or after 1 January 2026. The increase was required by the EU Minimum Tax Directive (Pillar Two).
Are dividends received by a Cyprus company taxable?
Generally no — dividend income received by a Cyprus company is exempt from CIT. The exemption does not apply where the subsidiary is in a low-tax jurisdiction (ETR < 6.25%) or where the income is passive foreign income paid out of artificially diverted profits.
Can capital gains on shares be taxed in Cyprus?
Capital gains on the disposal of 'titles' (shares, bonds, debentures, and similar securities) are fully exempt from CIT in Cyprus, with no minimum holding period. The exemption does not apply to gains on disposal of immovable property located in Cyprus.
How does Cyprus group relief work?
A group company can surrender its trading losses to another group member. The group relationship requires a 75% direct or indirect holding. Both companies must be Cyprus tax-resident or EU-resident with a Cyprus PE.
Does Cyprus have a minimum corporate tax regardless of profits?
No. Cyprus has no minimum corporate tax. If a company makes a loss or has zero taxable profit, it pays no CIT. There is a small annual levy (currently €350) for maintaining the company on the register, but this is not a tax on income.
Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws change frequently. Consult a qualified Cyprus adviser for guidance specific to your situation.
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