In November 2025, the Cypriot Parliament launched an ambitious tax reform package that is expected to reshape the country’s tax landscape from 2026 onward. For international groups and high-net-worth individuals using Cyprus as a holding, financing or IP hub, these changes raise a key question: will Cyprus remain a tax-efficient jurisdiction or turn into a higher-risk location?
What changes are being proposed?
1) Increasing the personal income tax exemption threshold from €19,500 to €20,500 and expanding the tax brackets.
2) Introducing a special taxation method for stock options granted under an approved scheme (a fixed 8% tax rate, applied only to an amount not exceeding twice the employee’s annual salary).
3) Increasing the corporate income tax rate from the current 12.5% to 15%.
The increase of the rate is driven by pressure from high-tax jurisdictions, which view countries with a corporate tax below 15% as potentially low-tax and therefore apply rules requiring the “top-up tax” to be paid in their own jurisdiction on income sheltered in Cyprus. This refers to the OECD Pillar 2 initiative applicable to “large groups” of multinational enterprises.
4) Extending the loss carry-forward period from 5 to 7 years.
5) Introducing a special taxation method for income derived from cryptocurrency transactions (a fixed 8% tax rate).
6) The Defence Tax (17%) poses the greatest risk when Cyprus receives dividends from companies that generate passive, non-operational income. Under the proposed amendments, this tax is reduced to 5%.
This exemption continues to apply when dividends are received from a country that meets the following conditions:
6.1) A tax burden of at least half of the Cypriot rate. Ukraine’s withholding tax may not meet this requirement under Cypriot law (depending on the size of the investment and shareholding ratio, our tax ranges from 5% to 10%).
6.2) The Ukrainian subsidiary does not predominantly earn passive, non-operational income. Thanks to this criterion, certain transactions can be treated as not triggering the Defence Tax — such as forward contracts in construction, royalty payments from operating companies, and income from an investment fund (provided the fund’s activity is operational). Accordingly, the existing interaction model between Ukrainian companies and Cypriot holding structures will remain viable: it will still be possible to pay the 5% withholding tax in Ukraine and receive inbound dividends in Cyprus tax-free.
7) Transfer Pricing. The thresholds for transactions subject to TP documentation requirements are being increased: for financial transactions – up to €10 million, for purchase and sale of goods – €5 million, and for other transactions – €2.5 million.
8) Several new General Anti-Avoidance Rules (GAAR).
The profits of permanent establishments (PEs) located in non-cooperative jurisdictions will no longer be exempt from Cypriot corporate income tax.
Legal entities incorporated in Cyprus are deemed to be tax residents of Cyprus.
What remains unchanged?
- The exemption for individuals who relocate to Cyprus (dividends received after their relocation remain tax-free for 17 years), provided they obtain the Tax Resident Non-Dom status.
- First-employment incentives. A 50% tax exemption for new residents earning at least €55,000 per year.
- The rules for acquiring Cypriot tax residency. An individual must spend at least 60 days in Cyprus, not be a tax resident of any other country, and not reside in any other country for 183 days or more.
- The exemption for the sale of securities and shares remains unchanged: capital gains tax does not apply. In other words, shares can be sold tax-free.
- Notional interest deduction (NID) on equity contributions, which allows a company to reduce its tax burden when providing loans to other countries or earning income from assets acquired with the contributed capital. In practice, this means an 80% deduction of interest income from such loans — or other qualifying income — for tax purposes.
- The IP Box regime, which exempts 80% of income derived from intellectual property from taxation.
- The exemption from taxation of dividends received from qualifying subsidiary companies.
Contact Crowe Mikhailenko experts for individual consultation and risk analysis.
📞 +38 063 466 8242
📩 marketing_crowe_legal@crowe.com.ua
