When exactly does the 15% rate apply?

For fiscal years beginning on or after 1 January 2026. A company with a December year-end will first pay 15% on its 2026 income. The 12.5% rate still applies to any fiscal year that ends before 31 December 2025.

Does the 15% rate apply to small companies too?

Yes. Unlike the Pillar Two minimum tax, which targets groups with over EUR 750 million in global revenues, the new 15% headline rate applies to all Cyprus-resident companies regardless of size or turnover.

What happened to the DDD (Deemed Dividend Distribution)?

The DDD is abolished for fiscal years from 2026 onwards. Previously, companies faced an additional SDC charge on undistributed profits retained for more than two years. This mechanism no longer applies under the new regime.

Does Cyprus still have a competitive corporate tax rate?

At 15%, Cyprus matches the OECD Pillar Two global minimum and remains well below the EU average corporate tax rate of approximately 21%. Combined with the IP Box, NID, and participation exemption, effective rates on qualifying income can be significantly below 15%.

What happens to SDC on dividends?

The SDC rate on dividends drops from 17% to 5% for distributions from profits earned from 1 January 2026. Dividends to Non-Dom shareholders remain exempt from SDC entirely.

Is there a grace period for companies with non-calendar fiscal years?

Companies whose fiscal year starts before 1 January 2026 complete that year at the old 12.5% rate. The 15% rate first applies from the fiscal year that begins on or after 1 January 2026.

Cyprus Corporate Tax Rate Rises to 15%: What Changes for Your Company in 2026

Dec 23, 2025

Tax Updates

Read time: 2 minutes

Miriam Alonso

The Cyprus Parliament approved a comprehensive tax reform package on 22 December 2025, raising the corporate income tax rate from 12.5% to 15% for all Cyprus-resident companies. The new rate applies to fiscal years beginning on or after 1 January 2026.

What Changed and When

For fiscal years ending before 31 December 2025, the headline corporate tax rate remains 12.5%. Companies with a calendar year fiscal period will first pay the 15% rate on their 2026 income, when they file their 2026 tax return.

The rate increase is not solely a Pillar Two requirement. Large multinational groups with global consolidated revenues above EUR 750 million were already subject to a separate Domestic Minimum Top-Up Tax (DMTT) effective from 2025. The 15% headline rate now applies to all Cyprus-resident companies regardless of size.

What Else Changed in the Reform Package

The December 2025 legislation introduced several additional changes:

The Special Defence Contribution (SDC) on actual dividend distributions drops from 17% to 5% for distributions paid from profits earned from 1 January 2026.
The Deemed Dividend Distribution (DDD) mechanism, which previously imposed SDC on undistributed profits retained over two years, is abolished for periods from 2026 onwards.
Stamp duty is abolished on most commercial transactions.
The carry-forward period for tax losses is extended from 5 to 7 years.

The 120% R&D super-deduction is extended until 31 December 2030.

What Stays the Same

The reform preserved Cyprus's core tax advantages:

The IP Box regime remains operational. The effective rate moves from 2.5% to 3% as a mechanical result of the higher headline rate - the underlying 80% notional deduction is unchanged.
The Notional Interest Deduction (NID) on new equity contributions is unchanged.
The participation exemption on dividends from EU-resident subsidiaries is unchanged.
Non-Dom status for individual shareholders is unchanged. Dividends to Non-Dom shareholders remain exempt from SDC.

What This Means in Practice

A standard Cyprus trading company with EUR 500,000 of taxable profit will pay EUR 75,000 in corporate tax from 2026, compared to EUR 62,500 under the old rate. For a Non-Dom shareholder, the effective combined rate on distributed profits remains approximately 5% (corporate tax plus 2.65% GESY on dividends, with SDC exempt under Non-Dom status).

Sources: KPMG Tax News Flash, EY Global Tax Alert, PwC Cyprus Tax Reform Update - all published January 2026.

What Changed and When

What Else Changed in the Reform Package

What Stays the Same

What This Means in Practice

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