Cyprus Tax Guide 2026 — IP Box & CIT

The Cyprus 2026 tax reform — what changed

Effective 1 January 2026, Cyprus completed the most comprehensive overhaul of its tax law in more than two decades. The corporate income tax rate moved from 12.5% to 15%, aligning Cyprus with the OECD's BEPS Pillar Two global-minimum-tax framework for in-scope multinational groups. Several legacy provisions were repealed (Deemed Dividend Distribution, stamp duty on most instruments) and new categories were created (8% flat rate on crypto / digital-asset gains).

For founders evaluating Cyprus, the headline change is small in isolation (12.5% → 15%) but the broader package — SDC on dividends down to 5%, DDD abolished, stamp duty gone, the IP Box regime preserved at approximately 3% effective on qualifying profits — leaves Cyprus competitive against every alternative European jurisdiction.

Corporate income tax — 15% headline, exemptions and reliefs

Cyprus corporate income tax is charged on the worldwide income of Cyprus tax-resident companies. A company is Cyprus tax-resident when it is effectively managed and controlled in Cyprus — this is generally interpreted as the majority of directors being Cyprus-resident, board meetings held in Cyprus, and key strategic decisions taken in Cyprus.

Key exemptions reduce the headline rate substantially in practice:

• Dividend income from Cyprus and foreign sources — generally exempt (subject to anti-avoidance).
• Capital gains on the disposal of securities including company shares — 0% (real-estate-rich companies excluded).
• Profits of a foreign permanent establishment — exempt where the foreign PE is taxed at a rate of at least 50% of the Cyprus rate.
• Profits qualifying under the IP Box regime — 80% deduction, approximately 3% effective rate.
• Notional Interest Deduction (NID) on new equity — based on the 10-year sovereign yield + 5% premium.
• Group relief — losses transferable between Cyprus group companies in the same period (75% common shareholding).

The IP Box — Cyprus's flagship incentive at approximately 3% effective rate

The Cyprus IP Box is Cyprus's implementation of the OECD Modified Nexus Approach. Qualifying intellectual property income receives an 80% deduction, leaving the remaining 20% taxed at the headline 15% rate — an effective tax rate of approximately 3%, subject to eligibility, ownership/licensing structure, qualifying R&D expenditure, and the OECD nexus calculation. The regime is not automatic.

Eligibility requires (a) qualifying IP — patents, copyrighted software, utility models, certain plant variety rights — owned or exclusively licensed by the Cyprus company; (b) qualifying R&D expenditure incurred to develop the IP, ideally in-house; (c) revenue attributable to the qualifying IP; and (d) documentation of the nexus fraction (qualifying R&D expenditure ÷ overall expenditure × 1.3 uplift, capped at 1.0).

We recommend confirming eligibility through an Advance Tax Ruling before relying on the regime. ATR fees are €4,000–€5,500 + VAT advisory + €1,000 government fee (€2,000 expedited). Timeline: 6–18 months for the standard ruling track.

Withholding tax — 0% in most cases

Under domestic law Cyprus generally does not impose withholding tax on dividends, interest, or royalties paid to non-residents. There are three exceptions that became more important in the 2026 reform:

• Royalties used inside Cyprus — 10% domestic rate; treaty rates may reduce.
• Royalties paid to entities in EU non-cooperative-jurisdiction-list countries — 17% defensive measure from 1 January 2026.
• Treaty tie-breakers and anti-abuse rules can override the domestic 0% in specific cases (most commonly under EU directives).

SDC, Non-Dom status, and personal tax

Special Defence Contribution (SDC) is a separate Cyprus tax that applies to dividends, interest and rental income earned by Cyprus tax residents who are domiciled in Cyprus. The 2026 reform reduced SDC on dividends from 17% to 5%. SDC on rental income is 3% on 75% of rent (effective approximately 2.25%); SDC on passive interest is 17%.

Non-Domiciled (Non-Dom) status exempts Cyprus tax residents who are not domiciled in Cyprus from SDC on dividends, passive interest and rental income — for up to 17 of the 20 years following the year they become Cyprus tax resident. Non-Dom status is the single biggest reason high-income founders choose Cyprus over alternatives.

GESY (General Healthcare System) contributions still apply to Non-Doms at the prevailing rate, subject to the annual contribution cap. Personal income tax brackets remain progressive: tax-free up to €19,500, then 20–35% bands.

Tax residency — 60-day vs 183-day rules

Cyprus offers two routes to personal tax residency. The 183-day rule is the standard test: any individual present in Cyprus for more than 183 days in a calendar year is Cyprus tax resident, with no other conditions.

The 60-day rule is the route most founders use. It requires (a) at least 60 days in Cyprus in the calendar year, (b) a permanent home maintained in Cyprus (owned or rented), (c) Cyprus economic activity (employment, directorship, or Cyprus business), and (d) not more than 183 days in any single other country in the same tax year. From 2026, the 60-day rule no longer requires the absence of foreign tax residency, provided the remaining conditions are met — but treaty tie-breakers must be reviewed case-by-case.

VAT — registration thresholds and VIES

Cyprus VAT is 19% standard, with reduced rates of 9%, 5% and 0% on specific categories. Registration becomes mandatory once turnover exceeds €15,600 in any 12-month period. EU B2B service supplies require VIES registration from the first transaction, regardless of turnover.

OSS / IOSS are available for cross-border B2C digital and physical goods. Most operating companies should register for VAT voluntarily at incorporation to recover input VAT immediately.

Capital gains — 0% on shares, 20% on Cyprus immovable property

Qualifying securities gains are exempt from income tax under Article 8(22). Cyprus property CGT can apply to direct property-company shares and indirect holdings meeting the at-least-20% market-value test; liabilities are disregarded for that ratio. Review statutory exclusions and the property-attributable gain.

Direct disposals of Cyprus immovable property can be subject to 20% CGT. A share disposal requires separate review under the securities income-tax exemption, the Cyprus-property CGT rules and any foreign or shareholder-level tax.

Anti-abuse, transfer pricing and Pillar Two

Cyprus has implemented the EU Anti-Tax-Avoidance Directive (ATAD): CFC rules, GAAR, exit tax, hybrid-mismatch rules, and interest-deduction limitation. The 2026 reform tightened the EU non-cooperative-jurisdiction-list defensive measures.

Cyprus transfer pricing follows OECD Master File / Local File / Country-by-Country Reporting standards for groups in scope. From 2026 the Local File and Summary Information Table thresholds apply to Cyprus companies in cross-border related-party transactions — see transfer pricing and the Pillar Two impact article.

Frequently asked questions

What is the Cyprus corporate tax rate in 2026?

The headline rate is 15% from 1 January 2026 — up from 12.5% under the 2026 reform. The IP Box regime can reduce the effective rate on qualifying IP profits to approximately 3%.

Is Cyprus a tax haven?

No — Cyprus is a fully compliant EU member state, on the OECD white list, and implements ATAD, MDR, BEPS, Pillar Two and the EU non-cooperative-jurisdiction-list framework. Cyprus is a competitive tax jurisdiction within the EU framework, not a haven.

Do I have to pay tax on dividends from my Cyprus company?

If you are a Cyprus tax resident with Non-Dom status, no — dividends from your Cyprus company are exempt from SDC. You may still owe GESY contributions (subject to cap) and the dividend is part of personal-income reporting. If you are tax resident in another country, that country's rules apply.

What is the Non-Dom regime?

Non-Domiciled status exempts qualifying Cyprus tax residents from SDC on dividends, passive interest and rental income for up to 17 of 20 years from becoming Cyprus tax resident. It must be applied for at first Cyprus tax registration. See our Non-Dom service.

What's the difference between the 60-day and 183-day rules?

183-day rule: more than 183 days in Cyprus in the calendar year. 60-day rule: at least 60 days in Cyprus + permanent home + Cyprus economic activity + ≤183 days in any single other country. The 60-day rule is the route most internationally-mobile founders use.

Are royalties subject to withholding tax?

Generally 0% under domestic law for royalties used outside Cyprus. Royalties used inside Cyprus carry 10% domestic WHT (treaty rates may reduce). From 2026, royalties to entities in EU non-cooperative-jurisdiction-list countries carry 17% defensive WHT.

Does Cyprus tax crypto?

From 1 January 2026, gains on crypto and digital assets are subject to a flat 8% rate under the new regime, subject to final regulations. The previous treatment depended on whether the activity was investment or trading.