1.Income Tax Law

Income/corporation tax

• Corporate Income Tax (CIT) rate increased from 12.5% to 15%
• Tax loss carry forward extended from 5 to 7 years
• Additional 20% “super deduction” for qualifying R&D expenses (2025–2030)
• Amortisation of intangible assets with indefinite life capped at 20 years
• Entertainment expenses deductible limit increased to lower of 1% of turnover and €30,000
• Restriction on interest deductibility for non-business assets continues beyond 7 years
• Introduction of crypto taxation at a flat rate of 8% (both for individuals and companies and subject to conditions)
• Share option schemes may be taxed at 8% flat rate (subject to conditions)

Residency & Corporate Residence

• Removal of the requirement for individuals not to be tax resident elsewhere under the 60-day rule
• Corporate tax residency can be established by incorporation, unless overridden by a DTT (i.e. a Cyprus tax registered company is considered Cyprus tax resident by default)

Individuals

• Tax-free income band increased from €19,500 to €22,000
• New income tax deductions (subject to income thresholds) for:
  • Dependent children / university students
  • Interest or rent for main residence
  • Insurance against natural disasters
  • Energy efficiency expenses
  • Acquisition of electric vehicles

Other

• Ex-gratia payments (Retirement (including early retirement) / Termination of employment or appointment / “Golden handshake” payments / Compensation for loss of office above €200,000 taxed at 20%
• From 1 January 2031, redemptions of fund units treated as dividends (instead of disposal of titles)

2.Special Contribution for the Defence (SDC)

• SDC on dividends for Cyprus-domiciled individuals reduced from 17% to 5%. (non-domiciled individuals subject only to GESY)
• SDC on rental income abolished (both for companies and individuals) (rental income still subject to GESY)
• Deemed Dividend Distribution rules abolished for profits earned after 1 January 2026 (DDD payments applicable until 31 January 2028 relating to profits of the year 2025)
• Profits earned up to 31 December 2025 remain subject to SDC at 17% upon distribution
• New deemed dividend rules introduced at 10%, covering:
  • Private use of company assets by shareholders
  • Transfer of assets to shareholders below market value
• Non-domicile SDC exemption may be extended beyond 17 years upon payment of €250,000 per additional 5-year period
• Penalties and fines significantly increased
• From 1 January 2031, fund unit redemptions treated as capital reductions

3.Capital Gains Tax (CGT)

• Shares deriving 20% or more of their value from Cyprus immovable property fall within CGT (previously 50%)
• Increased tax-exempt thresholds for disposals of immovable property, agricultural land, and main residence
• Exemption extended to shares listed on regulated markets of recognised exchanges
• New exemption for unlisted shares up to €50,000 per annum
• Land-for-building exchanges exempt from CGT (αντιπαροχή). In this case CGT is deferred to subsequent disposal of the building/flat/shop etc)
• Penalties and fines increased

4.Assessment & Collection of Taxes Law

• Mandatory personal tax return (TD1) filing for:
  • All tax residents aged 25–71, regardless of whether they have income or not
  • All tax residents with income, regardless of age
• New tax return & payment deadline for audited taxpayers: 31 January (13 months after year-end)
• Partnerships now required to file tax returns (in addition to partners)
• Objection deadline extended to 60 days
• Statute of limitations remains 6 years, calculated from return submission date (as opposed from the end of the tax year)
• Audit threshold for individuals increased from €70,000 to €120,000
• Commissioner may suspend business operations for serious non-compliance
• From 1 July 2026, rent payments exceeding €500 must be made electronically (no cash)
• Directors remain liable for actions during their tenure even after resignation
• Increased penalties and fines across the board
• Commissioner of Taxation empowered to pledge shares where tax arrears exceed €100,000

5.Stamp Duty Law

• Stamp Duty is abolished
• Stamp duties for obtaining tax residence / tax clearance certificates still apply

The main points of the plan are:

• Application for Cypriot Citizenship

The period of eligibility for applying for citizenship will be reduced from seven years of residence and work in the Republic, to five years and to four years for holders of certification for very good knowledge of the Greek language

• Simplification of the process for granting work permits

 The Ministry of Interior will amend the relevant Regulations of the Aliens and Migration Law, to simplify the process and determine the criteria based on which work permits will be granted

• Right to employment for family members of third country nationals

Spouses of third country nationals who have obtained a residence and work permit in Cyprus with a minimum gross monthly salary of €2,500 will have immediate and free access to employment. The scheme is not available for support staff.

• Revised policy for the issuance of temporary residence and work permits to third country nationals
  • Eligible Companies:
    • Foreign companies operating in Cyprus or wishing to have physical presence in Cyprus
    • Cyprus shipping companies
    • Cyprus high-tech/innovation companies (subject to conditions)
    • Cyprus pharmaceutical companies or companies operating in the fields of biogenetics and biotechnology.

• • Main provisions:
    •  A minimum gross monthly salary of €2,500 is introduced for employees who have the required academic skills or at least two years of relevant experience
    • Companies will be able to employ third country nationals as support staff (with gross monthly salary below €2,500) provided that the employment of third-country nationals does not exceed 30% of all support staff
    • The duration of the residence and work permit can be up to three years and will be issued within one month from the application date
    • The maximum number of third country nationals is 70% of the total number of employees in a 5-year period from the date of the inclusion of the company in the scheme
• Tax incentives
  • Expansion of the existing income tax exemption of 50% for taking up employment in Cyprus:
    • The personal income tax exemption of 50% will be expanded to cover new Cyprus tax residents-employees with salaried income of €55,000.
    • Existing beneficiaries of the scheme (income between €55,000 – €100,000) should be able to extend the exemption from 10 to 17 years.
  • Extension of the tax exemption for investment in innovative companies
    • Consideration of the possibility to grant the tax exemption of 50% for investment in certified innovative companies to corporate investors in addition to individuals
  • Increased tax deductions for Research & Development (R&D) expenses
    • Granting an increased tax deduction on R&D expenses (e.g. by 20%). Eligible R&D expenses will be deducted from taxable income equal to 120% of the actual.
• Digital nomad visa

A new type of residence permit will be introduced, for people who wish to live in Cyprus but work in companies operating abroad referred to as digital nomad visa.

Persons eligible for the “visa” are third country nationals who are self-employed or employees who work remotely using information and communication technologies, with employers/clients outside Cyprus.

Digital nomads will have the right to stay in Cyprus for up to one year, with the right to renew for another two years. They can be accompanied by their family members, to whom, upon request, a residence permit that expires at the same time as their dependent’s is granted. During their stay in Cyprus, the spouse or partner and the minor members of the dependent’s family are not allowed to provide dependent work or to engage in any kind of economic activity in the country. In case they reside in Cyprus for a total period exceeding 183 days within the same tax year, then they are considered Cyprus tax residents.

• • Prerequisites (among others):
    •  There is a minimum threshold of funds coming from abroad (supported by salary, bank statements, etc.) set to €3,500 per month, increased by 20% for the spouse and by 15% for any minor dependent
    • Medical insurance
    • Clean criminal record certificate from the country of residence

Tax treatment of provisions/impairment of receivables for tax purposes

1.  bad debts proved to the satisfaction of the Commissioner to have become irrecoverable during the year of assessment and actually written off during the same year notwithstanding that such bad debts were due and payable prior to the commencement of the said year, and
2. specific provision for doubtful debts in respect of which the Commissioner is satisfied that they have or will eventually become irrecoverable.

Are deductible for IT purposes (subject to conditions):

Companies other than credit institutions

 The application of IFRS 9 does not affect the tax treatment of write-offs/provisions of trade receivables that was applied by companies up to tax year 2017 (before the revised IFRS9). The tax treatment therefore remains as follows:

Allowed write-offs

1. Bad debt write-offs provided that the taxpayer proves that, despite any measures taken, and based on the specific facts, the receivables have become irrecoverable and were therefore written off.
2. Specific provisions for bad debts provided that the taxpayer proves that, despite any measures taken, and based on the specific facts, there are objective difficulties in recovering the amounts.

Non-allowable write-offs

1. General provisions for bad debts, that do not take into account the specific facts and circumstances of each case.

Expected credit loss calculated under the “simplified approach” but on an individual basis will be allowed. Any amounts calculated based on a provisions table/matrix (usually general) which is prepared on a collective basis is not accepted.

Consequently, for the purposes of determining the taxable income of persons for tax years from 2018 onwards, the provisions/impairment of trade receivables recognized under IFRS 9 should be deductible to the extent that they represent items as explained above.

Tax treatment of provisions/impairment of receivables for Deemed Dividend Distribution purposes

No adjustment should be made to the profit for Deemed Dividend Distribution purposes in respect of provisions/impairment of receivables recognized under IFRS 9.

This treatment applies to all companies, including credit institutions.

IFRS 15 – Revenue from Contracts with Customers

The Guideline issued by the Cyprus Tax Department provides that the tax treatment of income recognized under IFRS 15 should be consistent with the accounting treatment, both for income tax/corporation tax purposes and for the calculation of special defense contribution on deemed dividend distribution.

Therefore based on the above, no adjustments should be made to the income tax/corporation tax and deemed dividend distribution computations.

IFRS 16 – Leases

The application of IFRS 16 does not affect the tax treatment of leases and for the purposes of determining taxable income, the treatment that applied up to the year 2018 shall continue to apply. Consequently, the impact of IFRS 16 should be eliminated in the tax computation of the lessee.

Operating leases (as interpreted for the lessor)

The lessee is entitled to a tax deduction for the annual rent expense (based on the accrual basis), which is the annual cost of using the leased asset, provided that the relevant asset is used for business purposes. The necessary adjustment should therefore be made in the tax computation to claim this deduction.

Finance leases (as interpreted for the lessor)

The lessee is entitled to capital allowances on the cost of the lease asset (Right of Use) as well as any finance cost that relates to the lease. The necessary adjustment should therefore be made in the tax computation to claim the respective capital allowances.

Tax treatment of leases for DDD purposes

 No adjustment should be made to the accounting profit subject to deemed dividend distribution in relation to the accounting treatment of leases as per IFRS 16.

The basis of the law is that the lower of €8.550 and 20% of the remuneration from any employment exercised in Cyprus by an individual who was resident outside Cyprus the tax year before the year of commencement of employment in Cyprus is exempt from income tax.

The exemption applies for a five year period and is available to qualifying individuals commencing employment between 2012 and 2025. It is clarified that the exemption is provided in the five years that follow the year of commencing employment.

The amendments relate to the Income Tax Law and the Special Defence Contribution Law. The amending laws clarify that the tax incentives apply only to the rental of immovable property to businesses whose operations have been suspended and are specifically included in the Infectious Diseases (Determination of Measures to Prevent the Spread of COVID-19 Coronavirus) Decree (No. 2) of 2021.

According to the amendments voted in the Income Tax Law, qualifying landlords can claim a tax credit equal to 50% of the amount of the monthly rental income, voluntarily reduced, as long as the rental reduction is not lower than 30% of the monthly rent.

The law provides for the following:

• The tax relief is provided for rental reduction made to a period not exceeding three months, which fall within 1 January 2021-30 June 2021, irrespective to which months the rental reduction applies.
• No tax credit is provided for the amount of rental reduction that exceeds 50% of the monthly rent.
• A written agreement between the landlord and the tenant should be in place which governs the terms of the rental reduction.
• The landlord and the tenant should not be related parties as per the definition of the term provided in Article 33 of the Income Tax Law.
• The amount of the tax credit can be claimed against the total income tax charge for tax year 2021.
• Any amount of tax refund that may arise as a result of the tax credit cannot exceed the amount of tax already paid.

Qualifying landlords can also claim an exemption from Special Defence Contribution, as long as the rental reduction is not lower than 30% of the monthly rent, provided that:

• the exemption is granted for a maximum period of three months which fall within 1 January 2021-30 June 2021, irrespective to which months the rental reduction applies.
• a written agreement between the landlord and the tenant is in place which governs the terms of the rent reduction.
• the landlord and the tenant are not related parties as per the definition of the term in Article 33 of the Income Tax Law.

The proceeds will go toward supporting refugees and owners of inaccessible immovable property, in an attempt to compensate for the inability to possess or use the land in the occupied Cyprus areas.

The contribution of 0,4% is payable by the seller of the property and it is imposed on the sales of:

• immovable property located in the areas controlled by the Republic of Cyprus and
• shares in a company that owns such immovable property (in Cyprus), provided that the buyer takes control of the company. For the calculation of the contribution, the value of the shares equals the latest valuation of the immovable property by the Department of Lands and Surveys

According to the amendment, qualifying landlords can claim a tax credit against their income tax for the year 2020. The tax credit is equal to 50% of the rent reduction, subject to conditions, voluntarily agreed and implemented between the landlord and the tenant.

The following conditions apply:

• the monthly rent reduction must be between 30% – 50%
• the rent reduction is within the year 2020 and does not exceed 3 months
• the rent reduction is supported by a written agreement between the landlord and tenant
• the landlord and the tenant are not related parties as per the definition of the term in Article 33 of the Income Tax Law

These include contributions to:

1. Social Insurance Fund
2. Approved Pension and Provident Funds
3. General Healthcare System
4. Life insurance policies;
5. Medical and other approved funds