Cyprus Changes Tax Rules: What Businesses and Investors Need to Know
In February 2025, the Cypriot government introduced a Tax Reform Proposal that includes significant changes in corporate and personal taxation. The main goals of the reform are to align with international standards, prevent tax evasion, and increase budget revenues.
Public consultation is currently underway, but the business community is already actively preparing for the upcoming changes. Let’s examine the key modifications and who they will affect the most.
Key Changes in Corporate Taxation
1. Dividend Repatriation Tax
Cyprus plans to introduce a tax on non-resident income (repatriation tax) for dividends paid to “low-tax” jurisdictions.
➡️ What does this mean? If a Cypriot company distributes dividends to a company registered in a country where the corporate tax rate is below 6.25%, such payment will be subject to a repatriation tax. The expected rate is 17%.
📌 Example: If a Cypriot company distributes dividends to the British Virgin Islands or the UAE, it will have to withhold and pay a 17% tax.
2. Restrictions on Interest and Royalty Payments
The reform prohibits the deduction of interest payments and royalties as expenses if they are directed to companies registered in low-tax jurisdictions.
➡️ What does this mean? Companies that have optimized taxes through royalty payment structures will no longer be able to deduct these expenses to reduce their taxable profits.
3. Corporate Tax Rate Increase
The corporate income tax rate will increase from 12.5% to 15%. This aligns with the OECD’s global minimum corporate tax initiative.
➡️ Who will be affected? All companies registered in Cyprus, especially those engaged in international business.
4. Loss Carryforward Period Extension
Cyprus plans to extend the period for utilizing accumulated losses to reduce tax obligations from 5 to 10 years.
➡️ What does this mean? Companies will be able to use past losses for tax optimization over a longer period.
Changes in Personal Taxation
1. Expansion of the 60-Day Rule
The Cypriot government plans to expand the 60-day rule, which determines tax residency status.
➡️ What does this mean? Individuals whose business interests are centered in Cyprus may become tax residents even if they spend less than 60 days in the country.
📌 Who is this important for? Entrepreneurs who use Cyprus for tax optimization and income structuring.
2. New Personal Income Tax Rates
The income tax scale for individuals is changing:
- Up to €20,500 – 0%
- €20,501 – €30,000 – 20%
- €30,001 – €40,000 – 25%
- €40,001 – €80,000 – 30%
- Above €80,000 – 35%
➡️ What does this mean? Higher tax burdens for high-income earners.
3. Reduction of the Special Defence Contribution
The rate is decreasing from 17% to 5% for Cyprus residents.
➡️ What does this mean? Lower tax pressure for individuals with domiciled resident status.
What Remains Unchanged?
Cyprus will retain some tax benefits:
✔️ IP Box Regime – reduced taxation on intellectual property income.
✔️ Notional Interest Deduction – tax deduction for equity capital.
✔️ 50% income exemption for new employees in Cyprus.
✔️ Non-Dom Status – exemption from special contributions for non-residents.
How Should Businesses Prepare?
🔹 Analyze corporate structure – Are there payments to low-tax jurisdictions?
🔹 Review dividend strategy – Should the recipient’s jurisdiction be changed?
🔹 Assess personal tax residency – Should residency status be reconsidered?
🔹 Optimize financial flows – Adjust cash flows to minimize risks.
Our Conclusion
Cyprus is tightening tax control but remains an attractive jurisdiction for international business.
💡 If you conduct business in Cyprus, now is the best time to review your structure and prepare for the changes.
📞 Schedule a consultation – Our experts can help you find the best solutions for your tax strategy.
