Cyprus and Its Tax Reform: An Outlook for 2025

Today we will take a closer look at what the future may hold in Cyprus. We explain the planned tax reform in Cyprus with changes for both companies and individuals in areas such as taxation of profits, dividends, income, tax residency and other aspects.

The President of Cyprus Nikos Christodoulides announced earlier this year his vision for 2025, in which he intends to reduce Cypriot bureaucracy and increase efficiency (especially digital efficiency) through more than 80 reforms. In this context, Cyprus is now also announcing some tax developments affecting both individuals and companies. The planned changes affect the taxation of income, dividends and corporate profits, among others, and are generally quite positive. Some of the adjustments may generate more interest, while others may generate less. As always, it depends on your circumstances.

Caution: The following reforms are NOT yet law as of March 2025, but will most likely be introduced in 2026.

Reforms affecting companies in Cyprus

Let’s start with the news for companies or legal entities in Cyprus. Unfortunately, we have to start with the bad news: the current corporate tax rate of 12.5% will be increased to 15%. Cyprus is thus following a very harmful global trend initiated mainly by the OECD and aimed at harmonizing minimum taxation.

The background to all of this is the goal of the OECD, together with some 140 countries, to launch an international tax reform project to introduce a global minimum tax to make so-called tax havens (in reality tax shelters) less attractive. At the heart of this reform is the above-mentioned global minimum tax of 15% on corporate profits, which is intended to ensure that corporations can no longer reduce their tax burden by shifting their profits to countries with extremely low tax rates.

Cyprus is below this threshold at 12.5%. By raising it to 15%, the country is following the recommendations and guidelines of the OECD and adapting to the new international tax framework. Of course, Cyprus is also bowing to pressure from the European Union. In Cyprus’ case, the 15% will apply to all companies in Cyprus, regardless of their turnover, and not just to large multinationals with an annual turnover of more than €750 million. It may also be that the increase to 15% will be limited to companies with that minimum annual turnover, but this is still under discussion.

Elimination of Deemed Dividend Distribution (DDD)

The deemed distribution of dividends is a tax levy in the Cypriot tax system which was introduced by the Income Tax Law of 2002. It is a tax procedure whereby companies are deemed to have distributed a portion of their after-tax profits, even though no actual dividend payment has been made.

The purpose of all this is to ensure that retained profits do not permanently escape Cypriot taxation by ordering a de facto distribution. For non-dom residents, who did not have to pay tax on dividends anyway, this was not a problem until now, but it turns out that there are also Cypriots living in Cyprus 🙂

Cyprus now wants to abolish this rule. The abolition of the DDD rule has several positive effects, as Cyprus-based companies will now have more autonomy in deciding what to do with their dividends and avoid tax pressure. In addition, there is the possibility to use profits more flexibly for growth and expansion, or to reinvest profits on a long-term and regular basis. In addition, the overall simplification of tax planning is accompanied by a reduction in administrative costs.

Loss carry-forward extension to 10 years instead of 5 years

Loss carry-forward allows a company to offset one year’s loss in the next accounting period, i.e. in a subsequent tax return. This is useful when a company cannot offset its losses against income in the same period.

Under the proposed reform, business losses will now be tax deductible for up to 10 years instead of only 5. This measure will allow companies to offset losses against future taxable profits for a longer period of time, which will encourage investment in sustainable initiatives and innovation in environmentally friendly technologies. For many companies, this means into a greater degree of flexibility in tax structuring. The group relief mechanism, which allows losses to be offset within a group of companies, is maintained. An overall positive development.

Companies in the green technology sector will receive special support. Cyprus has included sustainable projects and innovations in the field of environmental protection and green technologies among its priorities for 2025.

Increased depreciation for green investments

In line with its sustainability policy, Cyprus is also increasing the tax depreciation rates for investments in green technologies and energy-efficient infrastructure with the new tax reforms. Companies that invest in green projects will be able to deduct a higher percentage of their expenses, thereby reducing their tax base and encouraging environmentally friendly business activities.

The Notional Interest Deduction (NID scheme, which allows companies to treat themselves as paying interest on their equity) and the IP Box scheme, which provides tax relief on income from intellectual property, i.e. patents, software, trademarks, etc., will also be maintained. In Cyprus, companies can declare up to 80% of this income tax-free, so many will be pleased to see this measure is being retained. With an effective tax rate of only 2.5% and very good double taxation arrangements for copyrights, Cyprus remains a prime location for software projects and inventions of all kinds.

Reforms affecting individuals

In the area of individuals, there are also some new developments in the Cypriot reform wave. For example, the already very high tax exemption of €19,500, will be increased to €20,500. This is particularly relevant for new entrepreneurs and micro-enterprises and offers some advantages over countries that want to squeeze you from the first euro, especially in the start-up phase of the company. In addition, the higher tax bracket of 35 % will not apply from 60,000 euros, but from 80,000 euros.

On the other hand, the tax burden on households will be reduced. For families whose total income does not exceed 80,000 euros and in which both parents (married or cohabiting) work, a new system of tax allowances will be introduced, including a tax allowance of 1,000 euros per child. Children who study will also be taken into account: in this case, an additional tax deduction of 1,000 euros will be applied for daughters under the age of 23 and for sons under the age of 24. In addition, families paying installments on a loan for the construction of a first home will receive an annual tax reduction of 1,500 euros. There is also a tax benefit of up to €1,000 per year for green renovations in the home, granted for a maximum of five years, once again demonstrating the focus on sustainable issues on the Cypriot agenda.

The 50% tax exemption on earned income for individuals earning more than 55,000 euros per year is maintained.

New tax residency model

A particularly interesting and significant change for many is the proposed new tax residency model. Currently, Cyprus continues to apply the so-called “60 day rule” under the  non-dom scheme, whereby persons who reside in the country for more than 60 days are considered to be tax residents of Cyprus, subject to certain conditions.. This means that, in order to be considered a tax resident in Cyprus, it was not necessary to have spent 183 days (or more) in another country, but to have been physically present in the country for 60 days and to have a limited company, in addition to paying social security. This rule exists in parallel with to the traditional 183 day rule, under which persons who spend more than 183 days a year in Cyprus are automatically considered tax residents.

However, starting in 2026 Cyprus plans to make significant changes to its tax laws and completely eliminate the current 60 day presence requirement for non-resident status. Instead, a center of vital and economic interests will be taken into account. According to the international standard, the center of vital interests refers to person’s close personal and economic ties to a particular state. The Cypriot tax reform has a similar understanding of this concept, and the authorities will take into account several factors to determine whether a person has a center of vital interests in Cyprus, and not just the physical presence in the country. This is likely to include, for example, having a residence or maintaining the main business activity in Cyprus. As always, it is important that the circumstances are credible.

For current users of Cypriot non-dom status, the usual 60 day rule should remain in place (so if, for some reason, you want to remain eligible for it, you may want to process your non-dom this 2025). It is possible that, at least for new applicants, the fixed 60-day criterion will be removed and the minimum stay will actually increase in nominal terms. The application of the new tax residency rules will mean that you will have to be able to prove that you have a center of vital interests in Cyprus.

Reduction of the Special Defense Contribution (SDC) on dividends

The SDC is a Cypriot tax levied on certain types of passive income. The background to this “defense tax” is the increasingly relaxed border conflict situation with the Turkish part of Northern Cyprus. It is a central element of the Cypriot tax system with special rules for different groups of people. It is distinct from and additional to the normal income tax. Unlike income tax, which applies progressive rates, SDC applies fixed percentages to different types of income. Both local legal entities and individuals are subject to this tax, with the exception of non-doms.

As part of the tax reform, the SDC rate on dividends will be reduced from 17% to 5%. This significant reduction is aimed at strengthening Cyprus as a business and investment center, reducing the tax burden on dividend income and facilitating the reinvestment of profits. In addition, the 3% SDC on rental income will be completely abolished. This measure has mainly administrative and managerial advantages, as it is not so much the amount but the administrative burden of filing tax returns to declare this tax rate that is a huge burden.

With this final levy of only 5% on dividends and an adjustment of the center of life concept to less than 183 days for non-residents, Cyprus becomes  more attractive for certain cases. In particular, Cypriot citizens and other persons who are now ineligible for the non-dom regime will find significant tax advantages.

Maintenance and extension of the Non-Dom regime

A fundamental point is that the tax benefits for non-doms will be maintained. The current beneficiaries of the regime will continue to have a 17-year guarantee of protection. Qualifying individuals will continue to be exempt from tax on dividends and interest with respect to the SDC. However, a revision of the regime for new applicants is being considered at : an annual flat tax for non-residents could be introduced. It is envisaged that this flat tax would be levied in order to maintain the non-resident status and the associated tax benefits, while basic exemptions, such as the SDC, could continue to exist.

In our opinion, the most likely scenario is that Cyprus will introduce a flat tax similar to Malta’s of between €5,000 and €10,000 per year, of course only for new applicants. A higher flat tax is unlikely, as with a new dividend tax of only 5%, non-resident status would be of little benefit. A flat tax could also mean that a tax residence certificate could be issued regardless of actual presence (of the 60 days).

Stamp tax reform

In addition, a reform of the so-called stamp tax is planned. This is a tax on certain documents and contracts that is levied when official documents are issued or legal transactions are carried out. It is planned to limit the scope of application of the stamp tax and to focus mainly on transactions related to real estate and insurance contracts. Again, the main objective is not only to save taxes, but also to reduce bureaucracy and improve the efficiency of commercial transactions.

Cryptotaxes

Finally, there seems to be legal clarity on the taxation of cryptocurrencies, which has not really existed for years. As in most other EU countries, anyone who occasionally buys and sells cryptocurrencies (not as a professional trader), will be exempt from tax on any profits they may make. The professional cryptocurrency trader, would be subject to income tax on his profits. For now, if this is your case, the best you can do is to use foreign companies for your crypto trading.

No changes are expected in the current rules regarding the management of foreign companies and the receipt of benefits from them. You will still be able to use tax-exempt foreign companies as long as you have a director outside Cyprus (for effective management purposes).

Perspectives

At denationalize.me we think that the reform proposals are not really bad. For those who are already non-dom, the only negative change, if any, is a marginal increase in corporate tax of 2.5%, but only if they use local companies, with foreign companies it would be business as usual. On the other hand, it is quite possible that this increase in corporation tax will only apply to companies with an annual turnover of 750 million euros or more. In the end, non-doms, will benefit from additional income tax exemptions and changes in depreciation rules of their Limited. In general, everything remains the same or even improves.

Even those planning to emigrate to Cyprus need not rush. No major deterioration in non-resident status is expected, although the specific requirements may change slightly. Instead of a minimum stay of 60 days and the establishment of a business subject to social security, a small flat tax could be introduced with a broader definition of the center of life, similar to what already exists in Malta.

Even without non-dom status, Cyprus is positioned as a very attractive tax haven for global entrepreneurs, with a dividend tax of only 5%. If the reform proposals are approved by Parliament, as expected, Cyprus’ attractive status will also be secured for the next decade.

Cyprus remains one of the best countries in the world to emigrate to, but many do not take advantage of all that the system has to offer. We often see entrepreneurs operating with a Cypriot limited company and paying corporation tax and turnover tax when they could avoid it altogether with foreign structures in non-tax jurisdictions.

Contact us if you are one of them. In Cyprus you can legally live completely tax free, and all of this at a very low cost. You can even use an LLC in the USA, a tax free company with no accounting, but you will have to make some adjustments that we will be happy to explain to you.

If you are considering to move to Cyprus or are already there and want to further optimize your tax situation, please contact us and let us advise you, we will be happy to help you!