Cyprus Corporate Tax Rises to 15% in 2026 — What It Means for Small Companies
Cyprus's headline corporate rate went up for the first time in over a decade, driven by the OECD's global minimum tax. Every Cyprus company pays the new rate — but a much lower dividend tax offsets it for local owners.
The short answer
Cyprus corporate income tax, effective January 1, 2026
Why the rate went up
Pillar Two pressure, not just a revenue grab
Cyprus's 12.5% rate had been one of the lowest in the EU for over 20 years. The 2026 change was driven by international tax rules, not domestic budget needs:
Under the OECD's Pillar Two framework, large multinational groups face a top-up tax anywhere their effective tax rate falls below 15% — so a 12.5% headline rate in Cyprus meant those groups paid the missing 2.5% elsewhere anyway, with none of the revenue reaching Cyprus.
By raising its own statutory rate to 15%, Cyprus captures that revenue domestically instead of ceding it to other jurisdictions' top-up mechanisms.
Rather than legislate a separate top-up regime that applies only to in-scope multinationals, Cyprus's parliament opted for a single unified 15% rate covering all companies — simpler to administer, but it means every company absorbs the increase.
The wider reform package, approved December 22, 2025 and published in the Official Gazette December 31, 2025, also abolished Deemed Dividend Distribution rules and revised capital gains and personal tax thresholds.
What changed for Cyprus companies in 2026
| Item | Before 2026 | From 2026 |
|---|---|---|
| Corporate income tax | 12.5% | 15% |
| SDC on dividends (domiciled residents, new profits) | 17% | 5% |
| SDC on dividends from pre-2026 profits | 17% | 17% if paid by 31 Dec 2031 |
| SDC on rental income | Applied (with exemptions) | Abolished for all residents |
| Deemed Dividend Distribution | Applied to undistributed profits | Abolished for 2026 profits onward |
Non-domiciled tax residents were already exempt from SDC on dividends before 2026 and remain exempt — the 5% rate mainly matters for Cyprus-domiciled shareholders.
The net effect for a small owner-operated company
Corporate tax up, dividend tax down
For a small Cyprus company distributing most of its profit to a resident owner, the two changes partly offset each other:
€100,000 of profit at the old 12.5% rate left €87,500 net of corporate tax; at 15% it leaves €85,000 — a €2,500 difference at the company level.
If that profit is then distributed as a dividend to a domiciled Cyprus tax resident, the SDC drop from 17% to 5% saves far more than the corporate tax increase costs — a meaningful net win for owner-operators who take dividends rather than salary.
Non-domiciled residents (Cyprus's well-known non-dom regime) already paid 0% SDC on dividends before 2026, so for them the corporate rate increase is a straightforward extra cost with no offsetting dividend benefit.
Companies that reinvest profit rather than distribute it feel only the corporate tax increase, since the abolished Deemed Dividend Distribution rule removes the old requirement to eventually deem — and tax — undistributed profits after two years.
Old profits are taxed under old rules
FAQ
Does the Cyprus 15% corporate tax only affect large multinational companies?
No. While the increase was driven by the OECD's Pillar Two rules for large multinational groups, Cyprus chose to raise its general statutory corporate tax rate to 15% for all companies rather than create a separate top-up regime. Small and one-person Cyprus companies pay the same 15% rate.
When did the Cyprus corporate tax increase to 15% take effect?
January 1, 2026. The reform package was approved by the Cyprus parliament on December 22, 2025, and the amending laws were published in the Official Gazette on December 31, 2025, with most measures effective from the start of the 2026 tax year.
What is the new SDC rate on dividends in Cyprus for 2026?
5%, down from 17%, for Cyprus-domiciled tax residents receiving dividends paid out of profits earned from 2026 onward. Dividends distributed from profits earned before 2026 remain taxed at 17% if paid by December 31, 2031. Non-domiciled residents continue to pay 0% SDC on dividends, as before.
Is SDC still charged on rental income in Cyprus?
No. Special Defence Contribution on rental income was abolished for all Cyprus tax residents from January 1, 2026. Rental income remains subject to ordinary income tax and GeSY (health system) contributions, just not SDC.
Keep reading
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