Cyprus raised its corporate income tax rate from 12.5% to 15% at the start of 2026. The change aligns the island with the OECD global minimum. It is part of the most significant reform of the Cypriot tax system this century. However, the rate increase is only one element of a much wider package.
The 15% headline rate is still among the most competitive in the EU. Moreover, the government kept three key regimes for international holding, financing and IP companies. These are the IP Box, the Notional Interest Deduction (NID) and the holding company framework. As a result, investors can still plan for the long term in Cyprus.
The IP Box
Under the IP Box, 80% of qualifying profit from qualifying intellectual property is exempt. Patented inventions and copyrighted software are examples. Therefore, only the remaining 20% is taxed, which gives an effective rate of about 3%.
The regime follows the OECD modified nexus approach. This means the benefit is proportionate to the qualifying development spending that the Cyprus company actually incurs. In addition, the 120% deduction for qualifying R&D expenditure now runs until 2030.
The Notional Interest Deduction
The NID is a key tool for equity-funded structures such as holding companies, financing companies and SPVs. It helps international groups plan their capital structure. It can also change the tax outcome significantly.
A Cyprus company funded with new equity instead of debt can claim a deduction against its taxable profit. No interest has to be paid. The deduction is capped at 80% of the taxable profit generated by the new equity. Consequently, the effective rate on that profit falls to about 3%.
The NID can be claimed every year as long as the capital stays productively deployed. The reference rate is the 10-year government bond yield of the country where the capital is employed, plus a fixed premium. Each year, the Cyprus Tax Department publishes the rates.
The holding company framework
Core holding rules remain in place. Dividends received from subsidiaries are exempt from corporate income tax under the participation exemption, subject to conditions. Gains on the disposal of securities are also exempt. However, the rules for property-rich entities have become tighter.
Cyprus still charges no withholding tax on dividends or interest paid to non-residents. There are two exceptions. The first covers payments to companies in EU blacklisted jurisdictions. The second applies from 1 January 2026 to related companies in low-tax jurisdictions. Likewise, there is no withholding tax on royalties if the IP right is used outside Cyprus.
New benefits in the 2026 reform
The reform also brought several useful changes:
- stamp duty and the deemed dividend distribution (DDD) rule are abolished;
- the loss carry-forward period is extended from five to seven years;
- the 120% R&D deduction is extended;
- special regimes now cover crypto-assets and employee stock options;
- the non-dom regime gets a structured extension mechanism.
Meanwhile, the 60-day and 183-day tax residency rules stay unchanged. So does the 50% exemption for employment income.
What this means for investors
The cornerstone features survived the reform. For this reason, Cyprus remains one of the most tax-efficient holding jurisdictions in Europe. Investors and entrepreneurs should therefore look beyond the new headline rate and assess the whole system.
Low corporate tax, an extensive treaty network, EU membership and compliance with international standards still define the island’s appeal. In the end, the 2026 reform confirmed its reputation for stability and reliability.