Cyprus Tax System – 2025 Overview
As of 2025, the Cyprus tax system continues to offer a competitive and transparent framework aligned with European Union directives and OECD guidelines.
Corporate Tax in Cyprus
For the year 2025, the corporate income tax rate in Cyprus remains at 12.5%. This tax applies to all companies that are tax resident in Cyprus, meaning companies that are managed and controlled within the Republic. As of 2023, any company incorporated in Cyprus and not managed elsewhere is also deemed to be a tax resident.
Cyprus has proposed a tax reform that, if approved, will increase the corporate tax rate to 15% starting from 1 January 2026. This change is in line with the EU’s adoption of the OECD’s Pillar Two global minimum tax rules. However, the current 12.5% rate remains applicable throughout 2025.
Loss Carry-Forward and Group Relief
Under current legislation, tax losses incurred by a Cyprus tax-resident company may be carried forward for five years and offset against future taxable profits. The proposed reforms will extend the carry-forward period to ten years, with limitations on the use of losses after the fifth year.
Group relief continues to apply in Cyprus. This means that tax losses may be transferred between group companies in the same tax year, provided that there is at least 75% ownership between the companies and all are tax-resident in Cyprus.
Special Defence Contribution (SDC)
The Special Defence Contribution, or SDC, is imposed only on income earned by Cyprus tax-resident individuals who are also domiciled in Cyprus. Non-domiciled residents and companies are generally exempt from SDC.
As of 2025, dividends received by individuals domiciled and tax resident in Cyprus are subject to 17% SDC. Passive interest income is taxed at 30%, with certain exceptions for low-income individuals and government-approved instruments, where the rate may be reduced to 3%. Rental income is subject to a 3% SDC on 75% of gross rent. These amounts are paid biannually.
The government has proposed changes to simplify the SDC regime. Under the new proposals, SDC on dividend income for individuals who are both domiciled and tax resident in Cyprus will be reduced from 17% to 5%. It is also proposed that the SDC on rental income will be abolished and instead taxed solely under income tax rules. These proposals are expected to come into effect in 2026.
Deemed Dividend Distribution
Under current rules, if a Cyprus-resident company does not distribute dividends within two years from the end of the tax year in which profits were earned, 70% of those profits are deemed to have been distributed. In such cases, the deemed dividend is subject to 17% SDC for Cyprus tax-resident and domiciled shareholders.
A proposal has been put forward to completely abolish the deemed dividend distribution rule as part of a wider tax reform initiative. This change is expected to reduce administrative complexity and align taxation with actual economic benefits received.
Capital Gains Tax in Cyprus
Capital gains tax in Cyprus is imposed at a rate of 20% on the disposal of immovable property located in Cyprus, as well as on the sale of shares in companies that directly or indirectly hold such property. Other capital gains, including those from the disposal of shares in companies not holding Cyprus real estate, remain exempt from capital gains tax.
Stamp Duty
Stamp duty in Cyprus is charged on certain documents relating to property, loans, and agreements. The standard rates remain in place as of 2025. Specifically, stamp duty is levied at 0.15% on amounts up to €170,886 and 0.2% on amounts exceeding that, with a maximum cap of €17,086. The government has indicated plans to restrict stamp duty to transactions involving immovable property, banking, and insurance agreements in the upcoming reform.
Personal Income Tax
In 2025, Cyprus personal income tax is structured into progressive bands. The first €19,500 of annual income is tax-free. Income between €19,501 and €28,000 is taxed at 20%, income from €28,001 to €36,300 at 25%, income from €36,301 to €60,000 at 30%, and any income exceeding €60,000 is taxed at 35%.
A tax reform has been proposed to increase the tax-free threshold to €20,500 and to adjust the brackets to introduce an additional tier for high-income earners above €80,000. This change aims to increase tax fairness and relieve the middle-income population.
Value Added Tax (VAT) in Cyprus
The standard VAT rate in Cyprus remains at 19% in 2025. There are also reduced rates of 9%, 5%, and 3% depending on the type of goods or services provided. VAT is applicable to most business activities in Cyprus, including services and imports. The VAT registration threshold remains at €15,600 annual turnover.
Withholding Tax on Outbound Payments
As of April 2025, Cyprus introduced a withholding tax on certain outbound payments made to entities based in jurisdictions included on the EU list of non-cooperative tax jurisdictions or to entities with a low effective tax rate (below 6.25%).
Dividends and interest paid to such foreign entities are subject to a 17% withholding tax, while royalties are taxed at 10%. These measures are part of Cyprus’s commitment to international tax compliance and anti-tax avoidance efforts. There is no withholding tax on payments made to EU/EEA member states or treaty partners not classified as low-tax jurisdictions.
Anti-Abuse, Transfer Pricing, and CFC Rules
Cyprus has implemented robust anti-abuse measures including Controlled Foreign Company (CFC) rules and Transfer Pricing (TP) documentation requirements. These are in line with the EU Anti-Tax Avoidance Directive (ATAD). TP documentation is mandatory for related-party transactions exceeding €750,000 annually, and companies are required to justify their intercompany pricing through local files and master files.
International Trusts and Shipping Companies
Cyprus International Trusts continue to benefit from full tax exemptions in 2025. Income generated by such trusts, whether in Cyprus or abroad, is not subject to income tax, capital gains tax, or SDC.
Cyprus shipping companies operating under the approved Tonnage Tax System remain exempt from corporate income tax on profits derived from qualifying shipping activities. Dividends distributed from such profits are also exempt from tax.
Double Tax Treaties
Cyprus has signed over 65 double tax treaties with other countries. These agreements ensure that income is not taxed twice, allowing tax paid abroad to be credited against Cyprus tax liabilities. The treaties support Cyprus’s position as a preferred jurisdiction for international business structuring.
Contact our tax specialists today for assistance with your Cyprus income tax return.
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