Cyprus Tax Reform 2026

Strategic Implications for Company Formation and Property Investment

The Cyprus Tax Reform 2026 marks the most significant overhaul of the island’s tax framework in over a decade. For investors considering Cyprus as a base for property holding structures, development projects or broader international business operations, this reform is not a reason to walk away. Rather, it is a signal to rethink structures, timelines and jurisdictions more carefully.

Cyprus remains an attractive jurisdiction: it offers access to the EU, a familiar common-law influenced legal system, robust property rights, comparatively straightforward company formation procedures and a deep pool of professional services. At the same time, it is aligning itself more closely with international tax and transparency standards, particularly the global move towards a 15 per cent minimum corporate tax rate and more rigorous anti-avoidance rules.

This article synthesises the key elements of the Cyprus Tax Reform 2026 and explores, in a practical and commercially focused way, what they mean for:

• New and existing Cypriot holding and property companies
• Special purpose vehicles (SPVs) used in real estate and structured investments
• Landlords, developers and co-investors using Cyprus as a platform for property exposure
• High-net-worth individuals (HNWIs) and family offices structuring cross-border portfolios

The focus is deliberately on real estate and investment structures, but the analysis is also relevant to international trading and IP-rich businesses that use Cyprus as part of their global footprint.

1. Cyprus as an Investment and Property Hub

1.1 Structural advantages

Cyprus has spent the last two decades positioning itself as a high-quality, mid-tax European hub rather than a classic low-tax or secrecy-based jurisdiction. Key advantages include:

• Membership of the European Union and use of the euro
• A business-friendly regulatory environment and a predictable corporate law framework
• A strong network of double taxation treaties
• No inheritance tax and a history of relatively light taxation of capital gains and dividends
• Accessible banking, advisory and fiduciary services

For property investors, these macro-level advantages sit alongside a real estate market that has shown both resilience and growth, supported by:

• A strong residential and commercial market in Limassol, driven by finance, shipping and professional services
• Nicosia as the political and administrative centre with a growing technology and services footprint
• Larnaca’s transformation as a result of infrastructure upgrades and waterfront development
• Paphos’s well-established reputation with retirees, second-home buyers and holidaymakers

These fundamentals underpin the investment thesis for both direct property acquisitions and more structured approaches such as SPVs, development joint ventures and co‑investment platforms.

1.2 The role of SPVs and structured investments

In recent years, there has been a clear trend towards using Cypriot companies and SPVs as the primary vehicles for:

• Holding single properties or small portfolios for buy‑to‑let activity
• Aggregating multiple properties (often off‑market) into structured investment products
• Forming joint venture vehicles between local developers and international capital
• Ringfencing development risk in individual projects
• Facilitating co‑investment and club deals where investors participate in a larger opportunity with smaller tickets

Typical benefits have included the ability to raise mortgage finance at the corporate level, offset interest and running costs, ringfence assets and liabilities, and implement succession planning and co‑ownership arrangements through shares rather than direct title.

The Cyprus Tax Reform 2026 does not undermine this basic logic. However, it changes some of the arithmetic, especially around corporate tax, dividend flows, rental income and the treatment of property‑rich companies.

2. Overview of the Cyprus Tax Reform 2026

2.1 Policy backdrop

The reform, approved in late 2025 and effective largely from 1 January 2026, is Cyprus’s answer to several converging pressures:

• The global push towards a minimum 15 per cent corporate tax rate
• EU scrutiny of preferential regimes and perceived harmful tax practices
• The need to broaden the tax base while remaining competitive and investment‑friendly
• Domestic priorities, including digitalisation of tax administration and improved compliance

The result is a reform that increases some headline rates but simultaneously removes or relaxes several distortionary mechanisms and transactional frictions. The overall direction is towards a transparent, modern, broadly based tax system where Cyprus competes on substance, efficiency and stability rather than on extreme fiscal generosity.

2.2 Key themes of the reform

Several overarching themes can be identified:

• Moderate increase in corporate tax: Corporate income tax (CIT) rises to 15 per cent.
• Shift from deemed to actual taxation of dividends: Abolition of deemed dividend distribution (DDD) and a focus on real distributions.
• Refinements in property and rental taxation: Greater reliance on standard income or corporate tax, fewer special levies.
• Maintenance of strong international competitiveness: 0 per cent withholding on many cross-border dividend flows is broadly preserved, with targeted exceptions.
• Digital and compliance overhaul: Mandatory electronic filing, expanded reporting obligations, and enhanced enforcement tools for the Tax Commissioner.

For investors and promoters, the message is clear: Cyprus remains open for business, but with higher expectations regarding compliance, documentation and genuine economic presence.

3. Corporate Income Tax: From 12.5% to 15%

3.1 The shift and its rationale

The most visible change is the increase in the standard corporate income tax rate from 12.5 per cent to 15 per cent. This move:

• Aligns Cyprus with the global minimum corporate tax framework
• Retains a competitive edge over many Western European jurisdictions with substantially higher corporate rates
• Sends a signal of long‑term stability, reducing the risk of Cyprus being viewed as a “race‑to‑the‑bottom” jurisdiction

For property SPVs and holding companies, a 2.5 percentage point increase in the tax rate will impact retained profits from:

• Rental income (net of allowable expenses)
• Development profits realised within the company
• Other trading or service income derived by a Cypriot corporate vehicle

Although this change increases the effective tax burden, it is important to see it in context. The abolition of certain levies and the clarification of dividend treatment may offset some of the impact, depending on the structure and the investor’s own tax profile.

3.2 Impact on property-driven structures

For a simple property‑holding company that earns rental income and perhaps some ancillary service income, the new 15 per cent rate will directly apply to taxable profits. Key planning points include:

• Ensuring that all allowable expenses (management fees, repairs, financing costs, local taxes, professional fees) are properly documented and claimed
• Considering whether debt levels and financing structures remain optimal given the new tax environment
• Timing large refurbishment or development expenditure so that losses can be utilised within the extended carry‑forward period (see below)

For development companies, the rate also applies to profits crystallised on the sale of units or completed projects. The change does not alter the basic choice between holding assets for long‑term rental versus building to sell, but it does slightly raise the post‑tax cost of “flipping” assets through a corporate vehicle.

4. Dividends, Deemed Distribution and Withholding Tax

4.1 Abolition of deemed dividend distribution

One of the most structurally significant changes is the abolition of deemed dividend distribution (DDD) for profits arising from 1 January 2026 onwards.

Under the old regime, if a Cypriot company accumulated profits but did not distribute them, a deemed dividend could be triggered after a prescribed period, leading to Special Defence Contribution (SDC) charges for Cyprus‑resident and domiciled shareholders. This made long‑term profit retention within Cypriot companies more complex and sometimes resulted in “forced” distributions or elaborate planning to avoid unnecessary charges.

With DDD abolished on new‑era profits:

• Companies have more flexibility to retain earnings without automatic DDD consequences.
• SPVs can accumulate reserves to fund future acquisitions, refurbishments or developments without triggering deemed dividend taxation, at least in respect of post‑2026 profits.
• Dividend planning becomes more straightforward and tied to actual distributions, which are easier to manage commercially and legally.

For property investors using multiple tiers of companies (for example, a Cyprus holding company above several asset‑owning SPVs), this simplification is particularly welcome.

4.2 Special Defence Contribution (SDC) on dividends

The reform also reshapes SDC on actual dividends:

• Dividends received by Cyprus‑resident and domiciled individuals from post‑2026 corporate profits attract SDC at a reduced rate of 5 per cent (down from 17 per cent).
• This reduced rate makes actual profit distributions significantly more attractive for individuals who are both resident and domiciled in Cyprus.

Non‑domiciled Cyprus tax residents have historically been able to benefit from exemptions from SDC on many forms of investment income, including dividends. While the detailed application of non‑domiciled status remains a matter for individual advice, the reduction in SDC on dividends generally enhances the after‑tax position of investors drawing actual dividends from Cypriot companies, particularly where DDD no longer forces their hand.

For international shareholders who are not Cyprus tax residents, the primary question is whether any withholding tax (WHT) applies on outbound dividends.

4.3 Withholding tax on outbound dividends

The traditional Cypriot advantage has been the absence of withholding tax on outbound dividends in many circumstances. This feature is broadly preserved, but with targeted anti‑avoidance elements:

• Outbound dividends generally remain at 0 per cent WHT.
• A 5 per cent WHT applies to dividend payments to “low‑tax” jurisdictions, typically those with an effective tax rate below 7.5 per cent.
• A higher 17 per cent WHT rate applies to jurisdictions included on the EU’s blacklist of non‑cooperative tax jurisdictions.

For cross‑border property structures, these rules have several implications:

• Using a straightforward Cypriot holding company to distribute profits to investors in mainstream jurisdictions (for example, EU member states or treaty partners that are neither low‑tax nor blacklisted) remains highly efficient.
• Routing distributions to vehicles in very low‑tax or blacklisted jurisdictions is now more expensive and likely to attract additional scrutiny, both from Cyprus and from the investor’s home state.
• When planning a holding structure, more emphasis should be placed on “clean” jurisdictions with robust treaty networks and substance, rather than attempting aggressive minimisation through opaque or highly preferential regimes.

In practice, many institutional and sophisticated private investors already favour such an approach. The reform simply formalises the trend and reinforces the value of transparent, well‑structured corporate chains.

5. Rental Income, Real Estate and Capital Gains

5.1 Abolition of SDC on rental income

Previously, rental income could attract SDC alongside income tax or corporate tax, creating a somewhat layered and complex burden. From 2026:

• SDC on rental income is abolished.
• Rent is taxed purely under the relevant income or corporate tax regime.

For property‑holding companies, this simplifies modelling significantly. There is now a clear, single layer of corporate tax on net rental profits, calculated after allowable deductions.

For individuals directly holding property, the change also removes a separate category of levy and allows for more conventional tax planning around rental profits and losses.

5.2 Property-rich companies and indirect real estate transfers

One of the more technical but highly consequential changes for sophisticated investors is the tightening of the “property‑rich company” rules.

Under prior rules, a sale of shares in a company could, in certain circumstances, be recharacterised as an indirect sale of real estate, bringing it within the scope of Cypriot capital gains tax (CGT). This typically applied if more than 50 per cent of a company’s value was derived from Cyprus‑situated immovable property.

Under the reform:

• The threshold for classifying a company as “property‑rich” is reduced from 50 per cent to 20 per cent of value derived from Cyprus real estate.

The practical consequences are considerable:

• Far more companies will fall within the “property‑rich” definition.
• Share sales in holding or SPV structures whose value is significantly linked to Cypriot real estate are now much more likely to be treated as indirect property disposals.
• Attempting to “wrap” property in a company to avoid CGT on a sale becomes riskier and, in many cases, ineffective.

For investors, this means that:

• The legal form of an exit (share vs asset sale) must be analysed carefully in advance.
• Negotiation of purchase price, tax covenants and warranties in share purchase agreements will require closer attention to the company’s underlying asset mix.
• Restructuring companies to dilute the property component of value may no longer be a realistic or proportionate strategy, particularly given enhanced transparency and substance requirements.

In short, the reform encourages investors to focus on the commercial logic of using SPVs and holding companies rather than treating them as a universal capital gains shield.

5.3 Capital gains exemptions for individuals

The reform also enhances certain CGT exemptions for individuals. While the detailed thresholds and conditions are beyond the scope of this overview, the direction of travel is clear:

• Genuine individual investors, particularly those investing in primary residences or within specified bands, may enjoy more favourable CGT treatment.
• The system is increasingly calibrated to support real‑economy investment while discouraging purely tax‑driven arbitrage through corporate wrappers.

For HNWIs and family offices, it becomes even more important to map out, at the outset, which properties are best held personally and which through corporate or trust structures, balancing asset protection, succession planning, privacy and tax.

6. Other Business-Friendly Measures

6.1 Extended loss carry-forward

The loss carry‑forward period is extended from five to seven years. This is particularly meaningful for:

• Development projects with multi‑year timelines, where substantial costs are incurred long before revenue is recognised
• Early‑stage investment structures or funds that incur set‑up and financing costs prior to stabilising rental income
• R&D‑intensive or technology‑driven businesses using Cyprus as a platform

For property investors, the longer window allows for more strategic timing of major refurbishments, capital improvements and one‑off costs:

• Losses generated in early years can be used systematically against profits in later years, improving lifecycle returns.
• Complex portfolios, where different assets reach stabilisation at different times, can benefit from more flexible loss utilisation across the group (subject to group relief and anti‑avoidance rules).

6.2 R&D super-deduction extension

The 120 per cent super‑deduction for qualifying research and development expenditure is extended until 2030. While this may appear tangential to bricks‑and‑mortar real estate, it is increasingly relevant where:

• Property portfolios are integrated with technology platforms (for example, smart building management, proptech solutions, data analytics for tenant optimisation).
• Cyprus entities support development of intellectual property that is then commercialised alongside physical assets.

Investors and promoters with hybrid technology‑real estate strategies should not overlook this relief. It can significantly improve the net cost of in‑house software development, digital infrastructure and innovation projects created within Cyprus companies.

6.3 Crypto-asset gains and employee share schemes

The reform also introduces or refines preferential treatment for specific asset classes and incentive tools:

• Business‑related gains on crypto‑assets are taxed at a flat 8 per cent, with losses ring‑fenced.
• Approved employee share schemes benefit from an 8 per cent flat rate on gains.

For property and investment structures, these provisions may be relevant where:

• A Cyprus corporate platform becomes a broader investment hub, including digital assets.
• Developer groups or asset managers wish to align key staff through equity or option‑based incentive plans.

The details of qualifying schemes and risk management around crypto will require bespoke advice, but the presence of these mechanisms further enhances Cyprus’s appeal as a sophisticated, multi‑asset jurisdiction.

6.4 Enhanced deductibility of entertainment expenses

The cap on deductible entertainment expenses is increased to 30,000 euros. This will not transform the economics of most real estate projects, but for:

• Investor‑facing platforms that host events, roadshows and promotional activities
• Developer groups that rely on a high‑touch marketing model

the increased cap offers modest additional flexibility while still imposing a clear ceiling that discourages abuse.

7. Digitalisation, Compliance and Enforcement

7.1 Mandatory e-filing and broader reporting

The reform pairs fiscal changes with a decisive move towards full digital compliance:

• All Cyprus‑incorporated or tax‑resident companies must now comply with mandatory annual electronic tax filing, regardless of size or activity level.
• All Cyprus tax residents aged 25 and above are required to file annual tax returns, significantly widening the reporting net.
• From mid‑2026, rental payments above a specified threshold must be paid electronically, thereby creating a digital trail that can be matched against declared income.

For investors and SPVs, the practical ramifications are immediate:

• There is little scope for “dormant in practice” companies without proper filings and bookkeeping; even low‑activity entities must comply.
• Directors and beneficial owners will face more questions from banks and regulators if filings are not up to date.
• Informal rental arrangements, especially in the holiday‑let and short‑term rental segments, will increasingly stand out as anomalies in a data‑rich system.

7.2 Strengthened enforcement powers

The Tax Commissioner’s powers are significantly enhanced, including:

• The ability to request detailed statements of assets and liabilities from taxpayers
• Broader access to banking records where there is suspicion of non‑compliance
• The power to freeze shares in companies for unpaid tax liabilities above specified thresholds
• The ability to seal business premises in serious cases of non‑compliance

For property and investment structures, these tools raise the stakes for:

• Transfer pricing and intra‑group arrangements that are not well documented
• Cash‑heavy operations, especially in hospitality or retail linked to real estate portfolios
• Aggressive tax planning strategies that rely on opacity or incomplete disclosure

Directors and shareholders must now treat Cypriot tax and regulatory obligations with the same seriousness as in larger Western European jurisdictions. Having a local adviser and a clear compliance calendar is no longer optional; it is fundamental risk management.

8. Implications for Company Formation and Structure

8.1 Rethinking holding architectures

Given the new environment, investors should revisit their choice of:

• Whether to hold Cyprus real estate directly or through one or more SPVs
• Whether to interpose a Cypriot holding company above project‑level entities
• How many tiers of companies are justified by genuine commercial and risk‑management needs

Key considerations include:

• Tax efficiency: A single Cypriot company holding one or more properties will still benefit from the 15 per cent rate on net profits, flexible dividend flows and the abolition of DDD. For multi‑asset portfolios, having separate SPVs per property or per cluster can still make sense for risk segregation and financing.
• Exit strategy: With the property‑rich company threshold reduced to 20 per cent, share sales will more frequently be treated as indirect property transfers. Investors should plan exits from day one, deciding whether they are aiming for asset sales, share sales or a mix.
• Jurisdiction of ultimate investors: The continuing 0 per cent WHT to most “normal” jurisdictions reinforces the appeal of a straightforward Cypriot parent company distributing profits onwards, particularly where investors are resident in treaty countries or mainstream onshore centres.

In many cases, the best solution will be a relatively simple structure: a Cypriot holding or platform company with a handful of SPVs, each aligned to specific projects or asset pools, supported by robust accounting and governance.

8.2 SPVs for buy-to-let and holiday lets

SPVs remain a powerful tool for buy‑to‑let investors, especially those building a portfolio across multiple locations such as Limassol, Nicosia, Larnaca and Paphos. Benefits include:

• Ringfencing risk: Liabilities associated with one property or project are contained within the relevant SPV, protecting the wider group.
• Bankability: Lenders often prefer lending to dedicated SPVs with clean asset and liability profiles.
• Succession and co‑ownership: Transferring shares is often easier and more flexible than amending direct property title, particularly for family co‑ownership or club deals.

Under the new tax regime:

• Rental profits in SPVs will be taxed at 15 per cent, with no SDC overlay.
• Dividends up the chain can be planned according to the ultimate investors’ profiles, taking advantage of the abolition of DDD on new‑era profits.
• Holding short‑term holiday lets within SPVs remains attractive, especially where properties are managed as part of a professional portfolio to optimise occupancy and yields.

SPVs must, however, be run as genuine companies:

• Proper governance and board procedures
• Separate bank accounts and records
• Compliant annual accounts and tax filings

In a more data‑driven environment, “shell” SPVs with poor records will attract unwanted attention.

8.3 Joint ventures and co-investment vehicles

Joint venture (JV) and co‑investment structures, often used to give investors exposure to larger developments or blocks of units, continue to make sense under the reformed regime. In particular:

• A Cyprus JV company can act as the vehicle for a collaboration between a local developer and foreign capital.
• Profits can be shared through dividends and, where appropriate, shareholder loans, with distributions benefiting from the benign WHT environment (subject to the low‑tax and blacklisted jurisdiction carve‑outs).
• The abolition of DDD simplifies long‑term capital accumulation, allowing the JV to reinvest profits across projects without triggering deemed distribution charges on post‑2026 profits.

Care must be taken to:

• Clarify exit routes in the shareholders’ agreement, especially in light of the stricter property‑rich company rules.
• Ensure that any carried interest, promote mechanisms or performance‑based fees are structured compatibly with both Cypriot tax law and the investors’ home jurisdictions.
• Maintain appropriate substance in Cyprus, particularly where the JV performs significant decision‑making, financing or development functions.

9. Transaction Structuring and Timing Around 2026

9.1 Legacy profits and transitional issues

A key practical issue for existing structures is the distinction between:

• Profits and reserves accumulated before 1 January 2026; and
• Profits arising from 2026 onwards.

The abolition of DDD applies to the latter category. For earlier profits, historic rules may continue to shape the timing and manner of distributions. Investors and their advisers should:

• Review the balance sheets of existing Cypriot companies to identify the magnitude of pre‑2026 accumulated profits.
• Decide whether to accelerate, defer or phase dividend distributions to manage any residual DDD exposure.
• Consider whether group reorganisations (for example, hive‑down of assets into new entities) might rationalise the future profile of profits and distributions.

Transitional planning is inherently fact‑specific, but ignoring it could lead to unexpected charges or suboptimal cash‑flow profiles.

9.2 Acquisitions and exits in a reformed CGT environment

The tighter property‑rich company rules demand a more deliberate approach to structuring acquisitions and sales:

• Where the target is an SPV whose value is overwhelmingly linked to Cyprus real estate, parties should assume that a share sale may be treated as an indirect property transfer and priced accordingly.
• Legal and tax due diligence should focus closely on asset composition, historical valuations, intra‑group transfers and prior restructurings.
• For portfolio deals, a mix of asset and share transfers may be considered to balance tax efficiency, transaction complexity and risk allocation.

Buyers and sellers will increasingly need to align on shared assumptions about Cypriot tax treatment, supported by professional opinions or, in complex cases, advance rulings.

10. Substance, Governance and “Digital-First” Operations

10.1 Substance as a non-negotiable

The global move towards substance‑based taxation and the specific tools introduced in Cyprus mean that:

• “Brass plate” companies with no real mind and management in Cyprus are increasingly untenable.
• Holding and investment companies should have credible local directors, board meetings held (and minuted) in Cyprus, and real decision‑making occurring there.
• Operational functions such as property management, finance, compliance and investor reporting should, where possible, have a meaningful footprint in Cyprus, whether in‑house or through outsourced but actively supervised providers.

Substance is not only about satisfying foreign tax authorities; Cyprus’s own administration is better equipped than ever to distinguish between genuine local businesses and structures that exist only on paper.

10.2 Digital readiness and record-keeping

With mandatory e‑filing, electronic rental payment thresholds and enhanced powers to request detailed statements, investors must ensure that:

• Accounting systems are robust, up to date and capable of producing clear, reconciled records.
• Banking operations for each SPV or holding company are transparent, with clear documentation for intra‑group flows.
• Lease agreements, property management contracts and loan documents are centralised and accessible for due diligence, audit and compliance purposes.

Those who invest early in clean, digital‑ready operations will find it far easier to raise finance, attract co‑investors, and exit assets or portfolios at premium valuations.

11. The Role of Specialist Platforms and Advisors

11.1 Sourcing and structuring off-market opportunities

Specialist investment platforms and advisory firms in Cyprus have evolved beyond simple brokerage. Many now offer an integrated service that covers:

• Sourcing off‑market properties, ranging from individual flats and houses to entire residential blocks, commercial units and hotels
• Evaluating renovation, repositioning or development potential in different cities and sub‑markets
• Designing SPV and co‑investment structures tailored to investor ticket size, risk appetite and desired level of involvement
• Assisting with due diligence, financing and ongoing asset management

In a more nuanced tax environment, such platforms are well placed to embed tax‑aware structuring into the earliest stage of deal design, rather than treating it as an afterthought.

11.2 Co-investment, joint ventures and crowd-style structures

For investors who do not wish to acquire and manage properties alone, co‑investment and JV structures will continue to play a central role. These can be particularly compelling where:

• Investors can participate with relatively modest capital (for example, 100,000 euros) in professionally managed portfolios or development projects.
• Deals are structured to provide passive income streams, with professional management of tenants, maintenance and compliance.
• Local partners bring knowledge of planning, construction and market dynamics, while international investors bring capital and strategic perspectives.

The new tax regime does not fundamentally change the attractiveness of such structures, but it does require that:

• Vehicle selection (for example, corporate vs partnership), profit allocation mechanisms and exit routes are compatible with the 15 per cent CIT environment and the revised CGT and dividend rules.
• Marketing materials and investor communications accurately reflect the post‑reform tax treatment of returns.

Platforms that can bridge the gap between tax‑technical requirements and clear, investor‑friendly propositions are likely to thrive.

12. Cyprus After the 2026 Reform: Still Attractive, but More Demanding

The Cyprus Tax Reform 2026 does not represent a step away from international investment. Rather, it signals a maturation of the jurisdiction:

• The corporate tax rate increases to a level that is globally credible but still regionally competitive.
• The abolition of deemed dividend distribution and the reduction in SDC on dividends to Cyprus‑resident and domiciled individuals make profit distribution more straightforward and, in many cases, more attractive.
• The elimination of SDC on rental income, coupled with clarifications around property‑rich companies and enhanced CGT exemptions for individuals, recalibrates the playing field without undermining the core value of Cyprus as a property and investment hub.
• Stronger digitalisation and enforcement tools mean that investors can no longer rely on informality or incomplete compliance; professional standards must rise accordingly.

For company formation and property investment, this translates into a more deliberate approach. The days of reflexively establishing multiple layers of companies in Cyprus simply because the jurisdiction is “tax friendly” are over. Instead, investors should:

• Define clear investment theses and exit strategies for each project or portfolio.
• Use SPVs and holding companies where they add genuine value in terms of risk allocation, financing and governance.
• Prioritise substance, good governance and digital‑ready record‑keeping.
• Work with advisers who understand both the letter and the spirit of the new regime, and who can integrate tax, legal and commercial considerations.

Cyprus remains a compelling location for those who approach it with professionalism and a medium‑ to long‑term outlook. The 2026 reform is less a deterrent than a filter: it will deter purely opportunistic or opaque structures, while continuing to reward serious investors who are prepared to engage with a modern, transparent and increasingly sophisticated tax and regulatory environment.