In December 2025 Cyprus adopted the most wide-ranging tax reform in more than twenty years, commonly referred to as the “Φορολογικός Μετασχηματισμός”. The package reshapes personal and corporate taxation, modernises the treatment of investment income and crypto-assets, and strengthens the administrative powers of the Tax Department. A central element of the reform is the introduction of a dedicated 8 per cent tax rate on gains from crypto-asset disposals under new Article 20E of the Income Tax Law.

Most provisions apply from the 2026 tax year onwards, with targeted transitional rules, particularly for corporate profits and dividend distributions earned up to 31 December 2025. This article provides a consolidated overview of the new framework, combining the general 2026 tax reform with the specialised crypto-asset regime, and highlights key planning points for individuals, families, investors and businesses using Cyprus as a base.

1. Strategic orientation of the reform

The reform package pursues several parallel objectives that reflect both international developments and domestic policy priorities.

• Alignment of corporate taxation with the OECD/G20 global minimum tax initiative and related EU measures through an increase of the general corporate income tax rate to 15 per cent.
• Strengthening of the social dimension of the tax system via expanded relief for families and middle-income earners and new deductions linked to housing and green investments.
• Simplification and modernisation of outdated provisions, most notably the abolition of the deemed dividend distribution regime for future profits and the abolition of stamp duty.
• Enhancement of the enforcement and anti-evasion toolkit available to the Tax Commissioner by expanding reporting obligations and granting new powers to collect and secure tax debts.

Overall, Cyprus seeks to remain a competitive and credible jurisdiction for international business, while redistributing part of the additional corporate tax revenue to households and supporting sectors of strategic importance such as technology, research and digital assets.

2. Personal income tax and relief for families

2.1 Higher tax-free threshold and revised bands

From the 2026 tax year the basic tax-free threshold for employment and pension income rises to 22 000 euro. Income above that level is taxed according to revised progressive bands:

• 20 per cent on income from 22 001 to 32 000 euro
• 25 per cent on income from 32 001 to 42 000 euro
• 30 per cent on income from 42 001 to 72 000 euro
• 35 per cent on income above 72 000 euro

This structure is designed to deliver tangible relief to low and middle earners while largely preserving the existing top marginal rate and maintaining the overall attractiveness of Cyprus for employees and retirees relocating from higher-tax jurisdictions.

2.2 Child and student-related deductions

The reform introduces a structured system of deductions for families with children and students up to the age of 24. The basic deduction amounts are:

• 1 000 euro for the first child or student
• 1 250 euro for the second
• 1 500 euro for the third and each subsequent child

Eligibility depends on household income thresholds, which scale with family size in order to focus relief on low and medium-income households:

• Up to 100 000 euro annual income for households with one or two children
• Up to 150 000 euro for families with three or four children
• Up to 200 000 euro for families with five or more children

This framework integrates a clear family-policy dimension into the Income Tax Law, recognising both the number of dependants and the overall financial capacity of the household.

2.3 Housing, green and insurance deductions

Additional targeted deductions promote housing stability, environmental goals and risk management:

• Up to 2 000 euro in total for loan interest and rent.
• 1 000 euro for qualifying “green” home investments, including the acquisition of electric vehicles.
• Up to 500 euro for home insurance against natural disasters.

These deductions operate alongside existing incentives and subsidy schemes, and in many cases can be combined, subject to the detailed conditions in the amending legislation and related guidance.

3. Corporate income tax and business-focused measures

3.1 Corporate tax increase to 15 per cent

The standard corporate income tax rate increases from 12.5 per cent to 15 per cent for tax years beginning on or after 1 January 2026. Cyprus therefore aligns itself with the emerging international consensus on minimum corporate taxation while remaining in the lower band of effective rates within the European Union.

Groups using Cyprus holding, financing, trading or IP entities will need to revisit their effective tax rate calculations and transfer-pricing models. However, the increase is partly offset by relief at shareholder level and by other supportive measures such as extended loss carry-forward and strengthened R&D deductions.

3.2 Abolition of deemed dividend distribution for future profits

A major structural change is the abolition of the deemed dividend distribution (DDD) regime for accounting profits earned after 1 January 2026. For profits up to 31 December 2025 the existing DDD rules and associated Special Defence Contribution (SDC) obligations continue to apply, subject to transitional provisions.

This creates a clear dividing line for dividend planning. Groups that have historically retained profits in Cyprus entities without distributing them should carefully consider whether to declare dividends in respect of pre-2026 profits or retain them subject to the existing DDD framework.

3.3 SDC on dividends and rents

For profits generated from 1 January 2026 onwards, SDC on dividend distributions to Cyprus tax resident and domiciled shareholders is reduced from 17 per cent to 5 per cent. In parallel, SDC on rental income is abolished. The combination of a higher corporate rate with lower SDC on post-reform dividends moderates the overall effective tax burden on distributed profits, while the abolition of SDC on rents simplifies the treatment of real estate income for individuals and companies that are both resident and domiciled in Cyprus.

3.4 Loss carry-forward and R&D incentives

The tax loss carry-forward period is extended from five to seven years. Capital-intensive and cyclical sectors, such as infrastructure, shipping and technology, are expected to benefit from the greater flexibility in matching losses with future profits.

The existing 120 per cent super-deduction for qualifying research and development expenditure is prolonged until 2030. This reinforces Cyprus as an R&D-friendly jurisdiction and complements both the intellectual property regimes and the new digital-asset framework described below.

3.5 Other corporate deductions and abolition of stamp duty

Further measures include an increase in the ceiling for deductible entertainment expenses to 30 000 euro (from 17 086 euro), which is particularly relevant for client-facing businesses, and the abolition of stamp duty. The removal of stamp duty has immediate relevance for loan agreements, share purchase agreements and other instruments that were previously subject to stamp duty, and should reduce friction in transactional work.

4. Dedicated regime for crypto-assets: 8 per cent tax on gains

4.1 Introduction of Article 20E

Within the wider reform package, new Article 20E of the Income Tax Law establishes a specific regime for gains arising from the disposal of crypto-assets. The provision applies from the 2026 tax year and introduces a flat 8 per cent income tax rate on profits from crypto-asset disposals for any person, including individuals and companies.

Article 20E operates in addition to the existing Capital Gains Tax Law, which continues to apply at 20 per cent to gains from disposals of immovable property situated in Cyprus and shares in companies that derive their value from such property. Crypto-asset gains are therefore treated separately from traditional real estate-linked capital gains.

4.2 Definition of crypto-asset

The tax definition of “crypto-asset” is aligned with the EU Markets in Crypto-assets Regulation (MiCA), Regulation (EU) 2023/1114. In simplified terms, crypto-assets are digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology or similar, and that do not fall within existing EU regimes for financial instruments or e-money.

In practice, the regime is expected to cover a broad spectrum of assets, including major cryptocurrencies such as Bitcoin and Ether, stablecoins, exchange and utility tokens, and many non-security NFTs and digital collectibles, provided they fall within the MiCA-style definition rather than the MiFID II definition of financial instruments.

4.3 What constitutes a disposal

Article 20E targets profits arising from the “disposal” of crypto-assets. Based on the amending law and accompanying materials, the following events are intended to be treated as disposals:

• Sale of crypto-assets for fiat currency.
• Exchange of one crypto-asset for another, including swaps into stablecoins.
• Use of crypto-assets to pay for goods or services, for example through merchants or crypto-funded debit cards.
• Donations or gifts of crypto-assets, including transfers to related parties without consideration, subject to any specific exemptions that may apply.
• Other forms of disposal that extinguish or transfer ownership, including certain redemptions or buy-backs.

Each disposal is a separate taxable event. Where a position is liquidated in stages, the cost base and gain for each tranche must be determined separately, with acceptable methodologies such as FIFO expected to be clarified by guidance from the Tax Department.

4.4 Computation of profit and application of the 8 per cent rate

Although Article 20E prescribes the 8 per cent rate, the computation of profit follows the general principles of the Income Tax Law. Broadly, taxable profit is calculated as disposal proceeds minus allowable acquisition cost and directly related expenses such as transaction fees and brokerage commissions.

The 8 per cent rate is flat; it does not escalate with the size of the gain and does not interact with the progressive personal income tax bands. Moreover, the profit taxed at 8 per cent is ring-fenced and is not aggregated with other income of the taxpayer, which avoids pushing other income into higher brackets.

By way of illustration, if a Cyprus tax resident acquires crypto-assets for 100 000 euro and disposes of them for 250 000 euro in 2026, the profit of 150 000 euro would be taxed at 8 per cent, resulting in an income tax liability of 12 000 euro, regardless of the individual’s other income.

4.5 Treatment of losses

A key feature of the regime is the restrictive treatment of losses. Article 20E overrides the general loss rules and provides that losses from the disposal of crypto-assets may be set off only against profits from crypto-asset disposals and only within the same tax year. There is no carry-forward of unused crypto losses to future years and no carry-back to earlier years, and such losses cannot be used to offset other categories of income.

This asymmetry is intentional. While a flat 8 per cent rate is attractive for profitable strategies, investors and professional traders must account for the fact that large losses realised in a market downturn cannot be utilised outside the crypto ring-fence or deferred to later years.

4.6 Mining, staking and other crypto-related income

The 8 per cent regime does not apply to all forms of crypto-related income. In particular, profits from crypto obtained through mining are excluded and continue to fall under the ordinary provisions of the Income Tax Law. In practice, mining is likely to be treated as a business activity taxed at the standard corporate or personal rates, with the ability to deduct relevant operating expenses and carry forward losses according to the general rules.

Staking rewards, yield-farming returns, decentralised finance interest and similar income streams are not disposals of crypto-assets in the strict sense. Unless they involve an actual disposal or redemption, they will typically be taxed as interest, other income or business profits, depending on the facts. Gains on crypto-linked derivatives and structured products may or may not fall within Article 20E, depending on the nature of the underlying and whether the instrument is classified as a financial instrument under MiFID II. Further administrative guidance is expected in these areas.

4.7 Tax residency, source rules and international investors

Article 20E does not create a special regime for non-residents. Cyprus tax residents, including resident companies, remain taxable on worldwide income, including gains from worldwide crypto-asset disposals, subject to relief under applicable double tax treaties. Non-residents are taxable only on Cyprus-source income. For digital assets traded on foreign exchanges, source determination will depend on existing principles, such as the place of effective management and control of the trading operation and the tax residence of the entity holding the assets.

For international investors and funds that use Cyprus companies as holding or trading vehicles for crypto, the new regime provides a clear statutory 8 per cent rate while preserving access to Cyprus’ treaty network and other participation-exemption features for non-crypto investments.

5. Administrative reforms and anti-evasion powers

5.1 Mandatory tax returns for adults

All individuals aged 25 and above are now required to submit an annual income tax return, even where their income is below the tax-free threshold, subject to narrow exceptions that may be defined by the Tax Commissioner. This measure broadens the information base of the Tax Department and is expected to be accompanied by simplified filing processes for low-income taxpayers.

5.2 Electronic payment of rent

From 1 July 2026, rent payments exceeding 500 euro per month must be made electronically. This requirement is both an anti-evasion measure aimed at improving traceability of rental income and a practical tool for documenting payments for both landlords and tenants.

5.3 Expanded investigative and enforcement powers

The Tax Commissioner receives significantly enhanced powers, including the ability to request detailed asset and liability statements for a period of six years, obtain banking records from Cyprus-based financial institutions and, in serious cases of non-compliance, seal business premises where taxpayers repeatedly fail to file returns, issue lawful receipts or settle assessed liabilities. Taxpayers retain the right to challenge such measures before the courts, and future case law will clarify the boundaries of proportionality and procedural safeguards.

5.4 Securing large tax debts

Where tax debts exceed 100 000 euro, the authorities may impose restrictions on the transfer of company shares, effectively freezing disposals until the liability is resolved. This reinforces the position of the Tax Department as a priority creditor and underlines the importance of timely settlement or structured arrangements for substantial tax exposures.

6. Record-keeping, compliance and practical next steps

The new framework places considerable emphasis on accurate record-keeping and proactive compliance, particularly in relation to investment and crypto-asset income.

Taxpayers will need systems capable of tracking:

• Acquisition dates, quantities and cost base of each investment or crypto-asset, including fees.
• Dates and proceeds of each disposal, with reliable conversion to euro where transactions occur in foreign currency or crypto-to-crypto form.
• Classification of each transaction as a disposal within Article 20E, a different category of income (such as interest, dividends or business profits) or a transaction outside the scope of Cyprus tax.
• Annual computations of profits and losses, showing clearly how crypto losses have been ring-fenced to the same year and set only against crypto gains.

For many individuals and businesses, particularly those operating across multiple exchanges and wallets, this will necessitate specialised software or professional assistance to generate reconciled transaction histories and audit-ready reports.

7. Strategic implications for taxpayers

The combination of the general 2026 tax reform and the dedicated 8 per cent crypto regime has far-reaching implications.

• Individuals and families should re-evaluate their net tax position under the new bands and deductions, factoring in the enhanced family, housing and green incentives, as well as the requirement to file annual returns from age 25.
• Corporate groups need to recalibrate effective tax rates in light of the 15 per cent corporate rate, reduced SDC on post-2026 dividends, abolition of DDD for future profits, longer loss carry-forward and extended R&D super-deduction.
• Real estate investors should consider the impact of the abolition of SDC on rental income and the shift to mandatory electronic rent payments above the 500 euro threshold.
• Technology, fintech and Web3 businesses should analyse the combined effects of the 8 per cent crypto gains regime, R&D incentives and preferential 8 per cent treatment for qualifying stock option benefits when designing operating models and employee participation schemes.
• All taxpayers ought to review internal systems and governance to ensure they can respond to expanded information requests and enforcement measures from the Tax Department.

8. Conclusion

The 2026 tax reform marks a significant recalibration of the Cypriot tax system. By coupling a modest increase in corporate taxation with targeted reliefs for households, the abolition of legacy mechanisms such as deemed dividend distribution, and the introduction of a clear statutory regime for crypto-asset gains, Cyprus aims to remain both competitive and aligned with evolving international standards.

Given the breadth and technical depth of the changes, tailored analysis of the amending laws and any subsequent circulars is essential. Careful planning around the 2025 and 2026 financial years, particularly in relation to dividends, crypto-asset disposals and group structures, will be crucial in order to optimise outcomes and ensure full compliance with the new framework.