Cyprus Company Tax Guide (2025): Rates, Incentives, Pillar Two, and What Changes in 2026
If you are running or setting up a company in Cyprus, you need more than just the headline corporate tax rate. You also need to understand how tax residency works, what income is exempt, how Notional Interest Deduction (NID) and the IP Box can reduce your effective rate, and how the new global minimum tax (Pillar Two) affects larger groups.
This guide gives a clear, research-based overview of Cyprus company taxation for 2025, plus a look at the confirmed changes from 2026.
This is general information, not tailored tax advice. Always speak with a Cyprus tax adviser before acting.
1. Company tax residency and scope of taxation
Cyprus taxes companies on a residence basis.
A company is tax resident in Cyprus if it is managed and controlled in Cyprus. In practice, this usually means that most directors are Cyprus-resident, board meetings happen in Cyprus, and key decisions are taken from Cyprus.
A Cyprus tax-resident company is taxed on:
Its worldwide income, adjusted for exemptions and incentives.
These rules ensure an effective minimum tax rate of 15% for groups with global consolidated revenue of at least €750 million.
For ordinary small and mid-sized companies, the headline rate remains 12.5%. For in-scope groups, the domestic top-up tax fills the gap between the effective rate and 15%.
2.3 Confirmed increase to 15% from 2026
In parallel, Cyprus has now approved a broader tax reform. According to recent law-firm and Big Four summaries:
The corporate income tax rate will rise from 12.5% to 15%.
The change applies to tax years beginning on or after 1 January 2026.
The reform is combined with other changes, such as:
Reducing Special Defence Contribution (SDC) on dividends from 17% to 5%
Removing SDC on rental income
Repealing deemed dividend distribution for profits from 1 January 2026 onwards
Therefore, 2025 is the last full year with a 12.5% standard rate for all companies, although large groups already face a 15% minimum through Pillar Two.
3. What counts as taxable income – and the main exemptions
Cyprus starts from worldwide accounting profits and then applies the Income Tax Law to reach taxable profits. This law includes important exemptions, which are a big part of the attraction of the regime.
According to recent summaries by major firms and tax-fact guides:
Common taxable income types:
Trading profits (services, products, consulting, holding activities where re-characterised)
Most types of interest and royalties (unless exempt or subject to SDC only)
Rental income (with specific treatment for SDC at shareholder level)
Key exemptions include:
Profit from the sale of “securities” (shares, bonds, debentures, units in funds, and similar instruments). Profits from these disposals are fully exempt from CIT.
Certain foreign permanent establishment (PE) profits, if conditions are met.
Many dividends received by a Cyprus company, subject to anti-avoidance and hybrid rules.
Because of the broad exemption for securities, many holding and investment structures see very little ordinary corporate tax in Cyprus, especially when combined with participation exemptions and double-tax treaties.
4. Notional Interest Deduction (NID) – reducing tax via equity
A central feature of Cyprus company taxation is the Notional Interest Deduction (NID) regime.
4.1 How NID works
NID allows a Cyprus company to take a deemed interest deduction on new equity, similar to interest on a loan. Recent official and professional summaries explain that:
NID is available on new equity introduced into a Cyprus tax-resident company (or Cyprus PE) after 1 January 2015.
“New equity” usually includes paid-up share capital and share premium.
Each year, the NID deduction = new equity × reference interest rate.
The reference rate is usually the yield on a 10-year government bond of the country where the funds are used, plus 5 percentage points, subject to a minimum Cyprus rate.
The deduction is capped at 80% of taxable profits from the assets financed by that equity.
If structured well, NID can reduce a company’s effective tax rate. For some equity-heavy structures, the rate can fall towards 2.5%, especially when combined with IP incentives.
4.2 NID and the 2025–2026 reforms
Importantly, current analyses of the 2025–2026 tax reform confirm that NID remains in place. The regime is preserved to keep Cyprus competitive, even as the headline CIT rate moves to 15% from 2026.
Therefore, equity-funded structures remain very relevant in long-term planning.
5. IP Box regime – effective 2.5% tax on qualifying IP income
Cyprus also offers a modern IP Box regime, aligned with OECD “nexus” rules.
Key points from recent law and advisory guides:
80% of qualifying profits from qualifying IP is treated as a deemed expense.
Only 20% of those profits remain in the tax base.
At a 12.5% corporate tax rate, the effective tax rate on qualifying IP income is about 2.5%.
Qualifying IP generally covers patents, software, and other innovative assets that meet the OECD nexus rules, but not trademarks and pure marketing intangibles.
The benefit depends on the level of R&D carried out by the Cyprus company or related entities.
Together, NID and the IP Box make Cyprus particularly attractive for holding, financing, and IP-rich structures, subject always to substance and transfer-pricing rules.
6. Special Defence Contribution (SDC) and deemed distribution
Cyprus levies a separate tax called Special Defence Contribution (SDC) on certain types of passive income.
6.1 What SDC applies to
Recent guidance from the Tax Department and professional firms shows that SDC currently applies at the following rates:
17% on dividends (for Cyprus tax-resident and domiciled individuals; companies are usually exempt on inbound dividends).
17% on passive interest (interest not arising from ordinary business activities).
3% on gross rental income, after a 25% deemed deduction.
SDC is mainly a shareholder-level tax, yet corporate structures need to understand its impact on ultimate owners.
6.2 Deemed dividend distribution
Separate from actual dividends, Cyprus has a deemed dividend distribution rule:
A Cyprus tax-resident company is deemed to distribute 70% of its after-tax profits two years after the end of the relevant tax year.
To the extent those profits have not been actually distributed as dividends, the company must pay SDC on behalf of any Cyprus tax-resident and domiciled individual shareholders.
This rule can create unexpected SDC costs if profits accumulate without real distributions.
6.3 Upcoming changes from 2026
The 2025–2026 reform package will significantly reshape this area:
Deemed dividend distribution is expected to be repealed for profits generated from 1 January 2026 onward.
SDC on actual dividends for resident-domiciled individuals is expected to fall from 17% to 5%.
SDC on rental income is expected to be removed.
For group planning, this means that from 2026 onwards, Cyprus will rely more on 15% corporate tax and a much lighter SDC framework.
7. VAT, capital gains tax, and social contributions
7.1 VAT
Cyprus applies:
A standard VAT rate of 19%
Reduced rates (for example 5% and 9%) on specific goods and services, such as certain food, hospitality and transport, according to official guidance.
Most B2B services across borders follow the reverse-charge mechanism.
7.2 Capital Gains Tax (CGT)
Cyprus applies Capital Gains Tax mainly to gains from:
Immovable property in Cyprus, and
Shares in companies holding such property (under certain conditions).
The CGT rate is 20%, but it does not apply to gains from the sale of ordinary securities falling within the CIT exemption, which is a major advantage for holding structures.
7.3 Social insurance and health contributions
Although not a company tax in the strict sense, employers must pay social insurance and related contributions on salaries. Recent business guides put the employer side of total contributions at around 15% of gross pay, including social insurance, the cohesion fund, and the General Health System (GESY).
You should factor these into your total effective cost when hiring staff in Cyprus.
8. Compliance, deadlines, and audits
For 2025, typical company compliance looks like this:
Tax registration: Companies must register with the Tax Department within 60 days of incorporation and receive a Tax Identification Code.
Accounting and audit: All Cyprus companies must keep proper books and prepare audited financial statementsunder IFRS.
Corporate tax return: The company CIT return is usually filed by 31 March of the second year following the tax year (for a 31 December year-end).
Provisional tax payments: Companies pay provisional tax in two instalments during the tax year, with a balancing payment after year-end.
Annual levy: A €350 annual levy is payable to the Registrar of Companies by 30 June each year.
Late filings can trigger penalties and interest, so most companies work with local accountants or tax lawyers to keep everything on schedule.
Quick summary: Cyprus company tax at a glance (2025)
Corporate income tax:
12.5% standard rate in 2025 for Cyprus tax-resident companies.
From tax years starting 1 January 2026, the rate will move to 15%, while NID and the IP Box remain in place.
Global minimum tax:
Pillar Two rules and a Qualified Domestic Minimum Top-up Tax apply from 2025 for groups with revenue of at least €750 million, bringing their effective rate up to 15%.
Key incentives:
Exemption for profits from sale of securities.
Notional Interest Deduction (NID) on new equity, capped at 80% of relevant profits.
IP Box regime with an 80% deduction on qualifying IP income, giving an effective ~2.5% rate on such profits.
Special Defence Contribution:
17% on dividends and passive interest, 3% on rental income (for resident-domiciled individuals, with company-level mechanics), plus deemed dividend distribution rules for now.
From 2026, deemed distribution is expected to be repealed and SDC on dividends cut to 5%, while SDC on rental income is removed.
Other taxes:
VAT at 19% (with reduced rates), CGT at 20% on Cyprus immovable property, and employer social contributions of roughly 15% of payroll.
Bottom line
Cyprus remains a competitive and flexible company tax jurisdiction in 2025. The 12.5% corporate tax rate, broad exemption for securities, NID, and the IP Box regime make it attractive for holding, financing, and IP structures. At the same time, the adoption of Pillar Two and the planned move to a 15% headline rate from 2026 keep Cyprus aligned with global rules while preserving key incentives.
If you are planning a structure, you now need to think in two time horizons:
Short term: how to use NID, participation exemptions, and IP incentives under the 12.5% regime.
Medium term: how your effective tax rate will look once the 15% rate and new SDC rules apply from 2026.
For step-by-step help on company tax, income tax, and business structures in Cyprus, you can explore detailed resources at Soneverse.
