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 current EU Blacklist includes the following countries: American Samoa, Anguilla, Antigua and Baruda, Fiji, Guam, Palau, Panama, Russia, Samoa, Trinidad & Tobago, Turks & Caicos, US Virgin Islands, and Vanuatu

The WHT are as follows:

Dividends

WHT at the rate of 17% applies on dividends paid by a Cyprus tax resident company to companies which are:

• resident in jurisdictions included in the EU Backlist, or
• incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.

The following conditions apply:

• The company receiving the dividend holds directly, either alone or jointly with associated companies, over 50% of the capital, voting rights, or is entitled to receive more than 50% of the profits in the company paying the dividends.
• The associated companies should also be resident in an EU blacklisted jurisdiction or incorporated/ registered in an EU blacklisted jurisdiction and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.

The WHT does not apply in the case of dividend payments on shares listed on a recognized stock exchange.

Interest

WHT at the rate of 17% (effective from 1 January 2024 / 30% up to 31 December 2023)  applies on interest paid by a Cyprus tax resident company to companies which are:

• resident in jurisdictions included in the EU Blacklist, or
• incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.

The WHT does not apply in the case of:

• interest payments on securities listed on a recognized stock exchange.
• Interest payments made by individuals.

Royalties (Article 21 of the ITL)

WHT at the rate of 10% applies on royalties paid by a Cyprus tax resident company to companies which are:

• resident in jurisdictions included in the EU blacklist, or
• incorporated/registered in a jurisdiction included in the EU Blacklist and are not tax resident in any other jurisdiction that is not included in the EU Blacklist.

The WHT does not apply in the case of royalty payments made by individuals.

It should be noted that interest income derived from the ordinary carrying on of a business or closely connected with the ordinary carrying on of a business is not considered as interest and therefore it does not fall within the provisions of the SDC law and is therefore taxed under the Income Tax Law.

Before the application of relevant law, the reduced rate of 3% was applicable only to interest income received by Cyprus tax resident domiciled individuals only.

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 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.

Non-Cyprus and non-domiciled Cyprus tax residents are not affected by the provisions of Deemed Dividend Distribution.

The Deemed Dividend Distribution provisions apply where a Cypriot tax resident company has not distributed at least 70% of its after tax profits, as adjusted, within two years from the end of the tax year to which such profits relate. In such a case, the undistributed part of such profits is subject to Special Defence Contribution at 17%.

Therefore, companies with accounting profits for tax year 2017 that fall within the Deemed Dividend Distribution provisions must declare the appropriate amount of dividend until 31 December 2019 and pay the relevant Special Defence Contribution via JCC smart (www.jccsmart.com) by the end of the following month that such dividend was declared, with the latest date being 31 January 2020. 

If no actual dividend distribution is made, the relevant undistributed accounting profits (up to the 70% threshold) would be considered as deemed distributed and the relevant Special Defence Contributio would need to be paid by 31 January 2020 via JCC smart.

It should be noted that as from 1 March 2019, the distribution of either an actual dividend or a deemed dividend, to Cypriot tax resident shareholders, both domiciled and non-domiciled, is also subject to contributions to the General Healthcare Scheme at 1,7%.

Late payment of the Special Defence Contribution and General Healthcare System due will be subject to a penalty of 5% on the tax due and interest at the current rate of 2% per annum. An additional penalty of 5% on the tax due may be imposed if the tax remains unpaid two months after the above due dates.

Based on the amendment the SDC rate applicable on interest income received by Cyprus tax resident domiciled individuals from corporate bonds is reduced from 30% to 3%.

The reduced rate is now in line with the SDC rate applicable on interest earned from Government bonds.

Cyprus tax resident non-domiciled individuals are not affected by the above change and are not subject to any SDC.

The amendment is applicable from 26 June 2019 onwards.