Corporate income tax in Cyprus: the 15% rate, exemptions and the right structure

Last reviewed: November 2026 · Reviewed by Stéphane Gombauld, tax expert, technologist and digital nomad

You run, or plan to open, a Cyprus company and want to know what it will really pay in 2026, after the reform changed the headline rate. This guide covers the rate, what is exempt, how profits reach you as a shareholder, the deadlines, and which structure fits what you do.

Cyprus corporate income tax in 2026: the key figures

Is this guide for you?

Read on if you…

• own or plan to set up a Cyprus Ltd for consulting, software, e-commerce or holding activities;
• want to know how profit reaches you as a resident non-dom or a non-resident shareholder;
• need the 2026 deadlines, the provisional tax mechanics and the substance rules.

Probably not your case if you…

• are self-employed with no company – your rates are in personal tax deductions and benefits in Cyprus;
• are only interested in deductible costs – see business expenses in Cyprus.

How is corporate income tax calculated in Cyprus?

A Cyprus tax-resident company pays corporate income tax on its worldwide profits. A non-resident company pays only on profits of a Cyprus permanent establishment. The tax year is the calendar year.

Start from IFRS accounting profit, add back non-deductible items (private car costs, fines, entertainment over the cap) and remove exempt income. See business expenses in Cyprus for the deduction rules.

The rate

For tax year 2026 the rate is 15%. The reform package that took effect on 1 January 2026 raised it from 12.5%, the rate Cyprus had kept since 2013. In exchange it cut Special Defence Contribution (SDC) on dividends from 17% to 5% and abolished the deemed dividend distribution rules.

Large groups were already there: the EU Pillar Two directive, transposed in December 2024, imposes a 15% minimum rate on groups with revenue of EUR 750 million or more.

What is exempt

• Dividends received, from Cyprus or abroad, unless the payer deducted them or they come from a mainly passive company taxed at well under the Cyprus rate.
• Profits from disposing of securities: shares, bonds, units in funds, options. No corporate tax at all. Only Cyprus real estate, held directly or through unlisted shares, attracts the 20% capital gains tax.
• Foreign permanent establishment profits, at the company's election, provided the PE is not mainly passive and lightly taxed.
• Interest that is not from the ordinary course of business is excluded from corporate tax and instead taxed under SDC at 17%.

Special regimes

IP box. 80% of the qualifying profit from patents, copyrighted software and similar assets you developed yourself is exempt. At 15%, that gives an effective rate of about 3%. The "nexus" rule links the exemption to R&D you actually did or outsourced to unrelated parties.

Notional interest deduction. Inject fresh equity after 2015 and the company deducts a deemed interest cost each year: the 10-year government bond yield of the country where the funds are used, plus 5 percentage points, capped at 80% of the taxable profit generated by that equity. For a bootstrapped founder, that is a real cut in tax on retained profits.

How does profit reach you as a shareholder?

Here's where Cyprus gets interesting for location-independent founders.

A non-dom founder therefore pays 15% at company level and 2.65% GHS on the dividend, and that is the whole bill. The tax breaks for expats and digital nomads in Cyprus guide explains how to qualify as non-dom.

Salary is the other route: deductible for the company, taxed in your hands at 0–35% with the first EUR 20,500 tax-free from 2026, plus 8.8% social insurance each side and GHS. A newcomer earning over EUR 55,000 from a first Cyprus job gets 50% of that salary exempt for 17 years.

What are the anti-avoidance and substance rules?

Cyprus implemented every EU anti-tax-avoidance (ATAD) rule, so a Cyprus Ltd is not a free pass.

1. Tax residence test. Management and control in Cyprus: real board meetings, a Cyprus-resident majority of directors, local decisions.
2. Transfer pricing. Related-party dealings at arm's length; a local file above EUR 5 million of financing or EUR 1 million of other transactions a year.
3. Interest limitation. Net borrowing costs above EUR 3 million capped at 30% of tax-EBITDA.
4. Controlled foreign companies and exit tax. Low-taxed passive subsidiaries are attributed to the Cyprus parent; moving assets out triggers tax on unrealised gains.
5. Defensive withholding taxes. 17% on dividends, 30% on interest and 10% on royalties paid to companies in EU-listed non-cooperative jurisdictions, extended from 2026 to low-tax jurisdictions.
6. General anti-abuse rule. Artificial arrangements with tax as a main purpose are ignored.

Here's the catch for nomads: if you, the sole director, run the company from a desk in Madrid for nine months, Spain can tax a permanent establishment there. Substance is where decisions are made, not where the certificate was issued.

When and how do you file and pay?

1. Register with the Tax Department within 60 days of incorporation and enrol on Tax For All (TFA).
2. Estimate the year's profit and submit a provisional tax return by 31 July.
3. Pay two equal instalments on 31 July and 31 December. You can revise the estimate before the second instalment.
4. Settle the balance by 1 August of the following year. If your estimate was below 75% of the final tax, 10% additional tax applies to the shortfall.
5. File the TD4 return with audited IFRS accounts by 31 March of the second year after the tax year (the 2026 return is due 31 March 2028), electronically.
6. Keep records six years. Late returns cost EUR 100, late payment 5% plus a further 5% after two months, plus interest. See tax fraud in Cyprus for the full penalty ladder.

Which structure fits what you do?

For most consultants and founders the Ltd wins once profit passes roughly EUR 60,000; below that, self-employment is simpler. The legal forms of business in Cyprus guide goes deeper, and Heavnn's business setup service maps the choice to your situation.

Common mistakes (and what they cost)

• Running the Ltd from abroad with no Cyprus board → the company becomes resident elsewhere and pays that country's rate, often 25–30%, plus Cyprus still claims it.
• Budgeting on 12.5% → a 2.5-point shortfall on 2026 provisional tax and the 10% additional tax if you fall below 75%.
• Ignoring the IP box nexus paperwork → the 80% exemption is refused and the full 15% applies.
• Treating interest from loans to friends as trading income → it is reclassified to SDC at 17% on gross interest with no deductions.

Frequently asked questions

What is the corporate tax rate in Cyprus in 2026?

The headline corporate income tax rate is 15% for tax year 2026, raised from 12.5% by the tax reform that took effect on 1 January 2026. Groups with consolidated revenue of EUR 750 million or more also fall under the Pillar Two minimum tax, which already guaranteed a 15% effective rate from 2024 for them.

When is a company tax-resident in Cyprus?

When its management and control are exercised in Cyprus: board meetings, strategic decisions and signing authority happen there. Since 2023, a company incorporated in Cyprus is also deemed resident unless it is tax-resident in another country. A Cyprus-registered company run entirely from Germany can therefore be claimed by Germany, so keep real decision-making on the island.

Are dividends received by a Cyprus company taxed?

Generally no. Dividends from Cyprus or foreign subsidiaries are exempt from corporate income tax, and exempt from Special Defence Contribution as long as the paying company does not mainly earn passive income taxed well below the Cyprus rate. Dividends that were deductible for the payer are not exempt. Dividends a Cyprus company pays to non-resident shareholders carry no withholding tax.

When do Cyprus companies pay and file corporate tax?

Provisional tax is estimated for the year and paid in two equal instalments on 31 July and 31 December. If the estimate turns out below 75% of the final liability, 10% additional tax applies. The balance is due by 1 August of the following year. The corporate return (TD4) with audited accounts is filed electronically by 31 March of the second year after the tax year.

Does Cyprus have withholding tax on dividends, interest or royalties?

Not for most non-resident recipients: dividends and interest leave Cyprus with no withholding, and royalties only carry 10% when the right is used in Cyprus. Payments to companies in EU-listed non-cooperative jurisdictions, and from 2026 to low-tax jurisdictions, face defensive withholding of 17% on dividends, 30% on interest and 10% on royalties.

What is the Cyprus IP box and the notional interest deduction?

The IP box exempts 80% of qualifying profit from patents, software copyright and similar assets you developed, giving an effective rate of about 3% at the 15% headline rate. The notional interest deduction lets a company deduct a deemed interest cost on new equity injected since 2015, based on a government bond yield plus 5%, capped at 80% of the taxable profit from that equity.

Related guides

• Business expenses in Cyprus – what you can deduct before the 15% applies.
• Legal forms of business in Cyprus – Ltd, partnership or sole trader.
• Tax breaks for expats and digital nomads in Cyprus – non-dom status and the 50% exemption.
• International tax treaties of Cyprus – treaty rates on inbound income.
• Corporate income taxes in Portugal – how Portugal compares.
• Corporate income tax in Spain – Spain's 25% regime.
• All country tax guides

Sources

• Cyprus Tax Department (Ministry of Finance)
• Tax For All portal
• CyLaw – Income Tax Law 118(I)/2002 and Special Defence Contribution Law
• Department of Registrar of Companies and Intellectual Property
• European Commission – Taxation and Customs Union (ATAD, Pillar Two)
• PwC Tax Summaries – Cyprus

This guide is general information, not personalised tax advice. See how we research and review.