Cyprus has introduced a major tax reform effective from 1 January 2026, marking the first comprehensive overhaul of the tax system in more than two decades. This guide outlines the most important changes to personal income tax, corporate tax, capital gains tax, and other regulations, with a focus on real estate investors and foreign buyers.
1. Personal Income Tax (Individuals)
New Tax Bands (Effective 2026)
- €0 – €22,000: 0%
- €22,001 – €32,000: 20%
- €32,001 – €42,000: 25%
- €42,001 – €72,000: 30%
- €72,001 and above: 35%
Key points:
- Tax-free threshold increased from €19,500 to €22,000
- More progressive structure to reduce the burden on lower and middle-income taxpayers
Deductions and Reliefs
- Family and children deductions: Higher allowances for larger families
- Housing and sustainability incentives: Deductions for mortgage interest, rent, green home improvements, and electric vehicle investments
- Home insurance against natural disasters
Filing and Compliance
- All tax residents aged 25 and above must file an annual income tax return, even if income is below the tax-free threshold
2. Corporate & Business Tax Changes
Corporate Tax Rate
- Standard corporate income tax increased from 12.5% to 15%
Dividend & Defence Contribution
- Withholding tax on dividends reduced from 17% to 5%
- Stamp duty abolished
Incentives and Structuring
- Loss carry-forward period extended up to 10 years
- Super-deductions for R&D and capital expenditures retained
- Clarified taxation on share options and digital asset gains (flat 8%)
3. Capital Gains Tax (CGT)
Standard CGT Rate
- Gains from disposal of immovable property remain taxed at 20%
Increased Exemptions
| Type of Disposal | Old Exemption | New Exemption |
|---|---|---|
| General CGT exemption | €17,086 | €30,000 |
| Primary residence | €85,430 | €150,000 |
| Agricultural land | €25,629 | €50,000 |
Share Disposals
- CGT now applies to company shares where 20% or more of the value derives from Cyprus real estate (previous threshold 50%)
Other Features
- Primary residence exemption requirements remain (ownership and occupation, typically 5 years)
- Deductible costs include improvements, legal fees, transfer fees, and agency fees
- Financial asset gains not linked to real estate remain exempt from CGT
- Cryptocurrency gains taxed at a flat 8%
4. Other Key Regulations
Stamp Duty Abolition
- All stamp duties fully abolished, reducing transaction costs
Deemed Dividend Distribution (DDD)
- Requirement removed for profits earned from 2026 onwards
Special Defence Contribution (SDC)
- Rental income: SDC abolished
- Dividends: SDC reduced to 5% for Cyprus domiciled residents
- Interest income: SDC reduced to 3% on foreign interest and some bonds
- Hidden dividends subject to 10% SDC
Mandatory Compliance & Reporting
- All tax residents aged 25–71 must file an annual return
- Partnerships and certain entities now required to file
- Rental payments over €500/month must be paid electronically from 1 July 2026
- Expanded enforcement powers for the Tax Commissioner (asset statements, banking data access, freezing company shares for tax debts)
Specific Activities
- Crypto disposals taxed at 8%
- Employee share options taxed at 8%
- Loss carry-forward period extended from 5 to 7 years
- Super-deduction for R&D remains at 120%
- Entertainment expense deduction cap increased from €17,086 to €30,000
- Severance and compensation payments over €200,000 taxed at 20% with a tax-free portion
5. Implications for Real Estate Investors and Foreign Buyers
- Higher exemptions for property sales reduce CGT for homeowners and investors
- Lower thresholds for property-rich companies increase CGT coverage on share deals
- Abolition of stamp duty reduces costs on legal documents and contracts
- Enhanced digital compliance and reporting improve transparency and reduce risk
- Incentives for green home improvements and sustainable investments
Cyprus’s 2026 tax reform represents a structural shift, simplifying and modernizing the tax system while offering new incentives for investors, homeowners, and businesses. For real estate investors and foreign buyers, understanding these changes is crucial to optimize tax planning and maximize investment returns.
Sources: KPMG Cyprus, Mondaq, Vrikis Legal, Chambers & Co.