Cyprus Tax Reform 2025

Cyprus Tax Reform 2025

Key changes and their impact on businesses

In 2025, Cyprus is implementing a major tax reform aimed at aligning its legislation with international standards, enhancing tax transparency, and maintaining the country’s competitiveness as a business-friendly jurisdiction. The reform introduces significant changes to corporate and personal taxation, strengthens substance requirements, and offers new incentives for green and digital investments.

In this article, we outline the main elements of the reform, its implications for businesses, and strategies for effective adaptation.

Corporate tax increase to 15%

One of the most notable elements of the reform is the increase in the corporate tax rate from 12.5% to 15%. This adjustment is part of Cyprus’s alignment with the OECD’s global minimum tax rules under Pillar II, designed to ensure a minimum effective tax rate for multinational enterprises.

As a committed member of the OECD Inclusive Framework, Cyprus is updating its tax system to remain compliant with international obligations while preserving its status as a competitive European jurisdiction. The new rate still places Cyprus among the lowest in the EU in terms of effective corporate taxation, especially considering the range of deductions, allowances, and planning mechanisms available under Cypriot tax law.

This increase is viewed as moderate and manageable for most businesses operating on the island.

Dividend tax reduced to 5%

The reform also includes a significant reduction in the Special Defence Contribution (SDC) on dividend income for Cyprus tax residents with Cyprus domicile status — from 17% to just 5%.

Moreover, the deemed dividend distribution (DDD) mechanism, which previously required shareholders to pay tax on retained earnings after a certain period, is being abolished. This change introduces greater flexibility in profit distribution and corporate planning, particularly for holding structures and family-owned businesses.

This measure is expected to improve cash flow management and reduce the administrative burden for many Cyprus-based companies.

New incentives for green and digital investments

In response to global trends in ESG and digitalisation, the Cyprus government is introducing a new set of tax incentives aimed at fostering sustainable development and innovation. The reform includes tax benefits for companies investing in:

• Environmentally sustainable projects;

• Digital transformation and automation;

• Information and communication technologies;

• Employee upskilling in digital competencies;

• Green infrastructure and energy efficiency.

Eligible investments will benefit from super-deductions, accelerated depreciation, and unlimited carry-forward of related losses. Deductions may reach up to 150% or more of eligible expenses, offering a strong fiscal advantage for companies engaged in modernisation and sustainability.

This makes Cyprus a competitive destination for startups and established enterprises investing in innovation.

Strengthened substance and tax residency rules

The reform introduces tighter substance requirements to reinforce Cyprus’s credibility as a jurisdiction of real economic activity. This is especially important for defending tax residency claims and aligning with EU expectations on base erosion and profit shifting (BEPS).

To be recognised as a Cyprus tax resident, a company must demonstrate:

• Operational office space within Cyprus;

• Local staff and management presence;

• Effective decision-making within Cyprus;

• Proper governance and documentation supporting the substance test.

For individuals, the 60-day tax residency rule remains in effect, provided additional criteria are met — including permanent residence, business or employment ties, and no tax residency in another country.

These updates promote genuine business operations and reduce exposure to tax disputes or double taxation risks.

Non-domicile regime preserved

Despite significant changes, Cyprus is retaining its popular non-domiciled tax resident regime for individuals. Non-doms remain exempt from SDC on dividend and interest income, providing an important incentive for high-net-worth individuals, international entrepreneurs, and executives relocating to Cyprus.

The government also proposes introducing a fixed annual fee option to extend the non-dom status beyond the current 17-year limit, thus maintaining long-term fiscal certainty for residents who contribute to the economy.

Business environment implications

The 2025 tax reform strikes a strategic balance between tax compliance and competitiveness. Key advantages of the new framework include:

• Alignment with OECD and EU requirements, ensuring long-term stability;

• Improved transparency and predictability for tax planning;

• Targeted incentives for investment in innovation and green growth;

• Favourable treatment of individual tax residents and shareholders;

• Increased trust from regulators, financial institutions, and international partners.

Traditional sectors such as real estate, services, and trade can benefit from the reform by updating their corporate structures and exploring new investment pathways.

Recommendations for businesses

To prepare for the new tax environment, companies operating in Cyprus should consider the following steps:

• Review existing profit distribution and dividend policies;

• Identify opportunities for investment in digital and sustainable projects;

• Ensure compliance with updated substance and residency requirements;

• Consider restructuring operations to optimise for new tax incentives;

• Update internal governance, documentation, and financial reporting.

An early assessment and strategic response can help minimise risk and take full advantage of the reform’s opportunities.

Cyprus’s 2025 tax reform reflects a forward-looking vision — one that balances international obligations with local economic priorities. While the corporate tax rate has increased, the jurisdiction remains fiscally attractive due to enhanced investment incentives, low dividend tax, and a flexible residency regime.

Hadjivangeli & Partners is ready to assist clients in understanding and applying the new rules. Our legal and tax advisors offer tailored guidance on compliance, restructuring, and optimisation in the evolving Cypriot tax landscape.

Whether you operate a multinational business, a family office, or a growing startup, we are here to ensure that your tax planning aligns with the latest regulatory developments — and supports your long-term success.

This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication. This article is for informational purposes only. For further advice, please contact us at the contacts listed on the site.