Cyprus Tax Regime
Corporation Tax
A company is considered a Cyprus tax resident if it is incorporated in Cyprus or if its management and control is exercised in Cyprus, unless an applicable double tax treaty provides otherwise. Resident companies are taxed on their worldwide income, while non-resident companies are taxed on their Cyprus-source income. The rate of corporation tax is 15% for tax years starting on or after 1 January 2026. The following types of income are exempt for corporation tax purposes:
- Dividend income (provided certain criteria are met).
- Interest income earned by a company is subject to corporation tax where it arises in the course of business activities. Interest that does not arise from the carrying on of a business activity is not subject to corporation tax; however, such interest may be subject to Special Defence Contribution (SDC) when received by Cyprus tax resident individuals who are also domiciled in Cyprus.
- Profits from the sale of securities, including shares in companies and units in mutual funds.
Cyprus has Controlled Foreign Company (CFC) rules in place (applicable since 2019). An interest-limitation regime effectively replaces classic thin capitalization measures for certain related-party debt. Profits from a foreign permanent establishment may be taxable in Cyprus unless specific exemptions apply.
Losses Carried Forward
Any loss is set off against income from other sources for the same year, if a corresponding positive amount would be a taxable profit or gain under the Income Tax Law. Insofar as a loss exceeds the income of that year, the loss is carried forward and set off against the income of subsequent years with a seven-year restriction limit for tax years commencing on or after 1 January 2026. No carry-back of losses is available.
In the case of any change of ownership in the shares of a company and a substantial change in the business of the company within any 3-year period, the right to carry forward of losses is lost. The same applies when a company’s activities have diminished and before any substantial reactivation there is a change in the ownership of the Company's shares.
Reorganisations
The types of reorganisations covered by the company reorganisation rules and their corporation tax consequences, follow strictly the provisions of the EU Merger Directive. They cover mergers, divisions, transfers of assets and exchanges of shares and provide for the carry-over of tax values of assets and liabilities, the transfer of losses and tax neutrality at the shareholder level. Reorganisations are exempt from VAT and land transfer fees/taxes, subject to the applicable conditions. Note: Cyprus stamp duty was abolished with effect from 1 January 2026 (subject to transitional rules for instruments executed up to 31 December 2025).
Special Defence Contribution
By virtue of the Special Contribution for the Defence Law of 2002, certain types of income (e.g., dividends, interest, rental income) may be subject to Special Defence Contribution (SDC) for Cyprus tax residents. For distributions of dividends from profits earned on or after 1 January 2026, the SDC rate on actual dividends received by Cyprus tax resident and domiciled individuals is 5% (down from 17%). Transitional rules apply for older profits.
Capital Gains Tax
Gains on the disposal of immovable property located in Cyprus are subject to a 20% capital gains tax. The same applies to gains from the disposal of shares in companies which directly or indirectly derive at least 20% of their value from immovable property located in Cyprus. Disposals of such property and such shares by reason of a reorganisation are exempt. Capital gains tax is not deductible for corporation tax purposes.
International Trust
Cyprus International Trusts may benefit from significant tax exemptions in Cyprus. In general:
- Income of a Cyprus International Trust that arises outside Cyprus is not subject to taxation in Cyprus, provided the beneficiaries are not Cyprus tax residents.
- Dividends, interest and other income received by a Cyprus International Trust from a Cyprus company are generally not subject to withholding tax in Cyprus.
- Gains on the disposal of assets held by a Cyprus International Trust are generally not subject to capital gains tax in Cyprus, except where the gain relates to immovable property located in Cyprus.
Shipping Companies
Qualifying shipowners, charterers and shipmanagers operating qualified community ships, enjoy the privilege of exemption from all direct taxes and taxation under the tonnage tax regime, including but not limited to:
- Profits from the use and disposal of a qualifying vessel.
- Dividends paid out of those profits at all distribution levels.
- Interest income in relation to the working capital of the company.
Double Taxation Treaties
Cyprus has an active network of 61 Double Taxation Treaties with countries around the globe. In the case of foreign-source income that is taxable in Cyprus, unilateral relief for foreign tax (paid directly or by deduction) is given by the credit method, on an item-by-item basis with no carry-over of excess credit.
Value Added Tax
Value Added Tax (VAT) is imposed on taxable supplies of goods and services and on importation of goods from a non-EU country. Input VAT suffered by an entrepreneur on business expenditure is set off against output VAT charged on his supplies. Taxable persons carrying on any economic activity and receiving services from abroad have to account for VAT in Cyprus for these services under the reverse charge mechanism. Consequently, such taxable persons must register with the VAT authorities. The standard rate of VAT is 19%.
A company is considered a Cyprus tax resident if it is incorporated in Cyprus or if its management and control is exercised in Cyprus, unless an applicable double tax treaty provides otherwise. Resident companies are taxed on their worldwide income, while non-resident companies are taxed on their Cyprus-source income. The rate of corporation tax is 15% for tax years starting on or after 1 January 2026. The following types of income are exempt for corporation tax purposes:
- Dividend income (provided certain criteria are met).
- Interest income earned by a company is subject to corporation tax where it arises in the course of business activities. Interest that does not arise from the carrying on of a business activity is not subject to corporation tax; however, such interest may be subject to Special Defence Contribution (SDC) when received by Cyprus tax resident individuals who are also domiciled in Cyprus.
- Profits from the sale of securities, including shares in companies and units in mutual funds.
Cyprus has Controlled Foreign Company (CFC) rules in place (applicable since 2019). An interest-limitation regime effectively replaces classic thin capitalization measures for certain related-party debt. Profits from a foreign permanent establishment may be taxable in Cyprus unless specific exemptions apply.
Losses Carried Forward
Any loss is set off against income from other sources for the same year, if a corresponding positive amount would be a taxable profit or gain under the Income Tax Law. Insofar as a loss exceeds the income of that year, the loss is carried forward and set off against the income of subsequent years with a seven-year restriction limit for tax years commencing on or after 1 January 2026. No carry-back of losses is available.
In the case of any change of ownership in the shares of a company and a substantial change in the business of the company within any 3-year period, the right to carry forward of losses is lost. The same applies when a company’s activities have diminished and before any substantial reactivation there is a change in the ownership of the Company's shares.
Reorganisations
The types of reorganisations covered by the company reorganisation rules and their corporation tax consequences, follow strictly the provisions of the EU Merger Directive. They cover mergers, divisions, transfers of assets and exchanges of shares and provide for the carry-over of tax values of assets and liabilities, the transfer of losses and tax neutrality at the shareholder level. Reorganisations are exempt from VAT and land transfer fees/taxes, subject to the applicable conditions. Note: Cyprus stamp duty was abolished with effect from 1 January 2026 (subject to transitional rules for instruments executed up to 31 December 2025).
Special Defence Contribution
By virtue of the Special Contribution for the Defence Law of 2002, certain types of income (e.g., dividends, interest, rental income) may be subject to Special Defence Contribution (SDC) for Cyprus tax residents. For distributions of dividends from profits earned on or after 1 January 2026, the SDC rate on actual dividends received by Cyprus tax resident and domiciled individuals is 5% (down from 17%). Transitional rules apply for older profits.
Capital Gains Tax
Gains on the disposal of immovable property located in Cyprus are subject to a 20% capital gains tax. The same applies to gains from the disposal of shares in companies which directly or indirectly derive at least 20% of their value from immovable property located in Cyprus. Disposals of such property and such shares by reason of a reorganisation are exempt. Capital gains tax is not deductible for corporation tax purposes.
International Trust
Cyprus International Trusts may benefit from significant tax exemptions in Cyprus. In general:
- Income of a Cyprus International Trust that arises outside Cyprus is not subject to taxation in Cyprus, provided the beneficiaries are not Cyprus tax residents.
- Dividends, interest and other income received by a Cyprus International Trust from a Cyprus company are generally not subject to withholding tax in Cyprus.
- Gains on the disposal of assets held by a Cyprus International Trust are generally not subject to capital gains tax in Cyprus, except where the gain relates to immovable property located in Cyprus.
Shipping Companies
Qualifying shipowners, charterers and shipmanagers operating qualified community ships, enjoy the privilege of exemption from all direct taxes and taxation under the tonnage tax regime, including but not limited to:
- Profits from the use and disposal of a qualifying vessel.
- Dividends paid out of those profits at all distribution levels.
- Interest income in relation to the working capital of the company.
Double Taxation Treaties
Cyprus has an active network of 61 Double Taxation Treaties with countries around the globe. In the case of foreign-source income that is taxable in Cyprus, unilateral relief for foreign tax (paid directly or by deduction) is given by the credit method, on an item-by-item basis with no carry-over of excess credit.
Value Added Tax
Value Added Tax (VAT) is imposed on taxable supplies of goods and services and on importation of goods from a non-EU country. Input VAT suffered by an entrepreneur on business expenditure is set off against output VAT charged on his supplies. Taxable persons carrying on any economic activity and receiving services from abroad have to account for VAT in Cyprus for these services under the reverse charge mechanism. Consequently, such taxable persons must register with the VAT authorities. The standard rate of VAT is 19%.