Cyprus’s tax reform, which took effect on 1 January, raises the corporate tax rate from 12.5% to 15% whilst slashing tax on actual dividends from 17% to 5%, in a package of 14 changes aimed at strengthening business competitiveness and attracting foreign investment.
The state expects to collect €240 million from the corporate tax increase based on the existing number of companies, according to a University of Cyprus Economic Research Centre study conducted before the bill’s approval.
This amount corresponds to the tax deductions the state will grant to individuals for family composition, number of children, loans, rent and green investments.
The dividend tax cut is expected to bring in €130 million, according to Economic Research Centre estimates.
The Tax Department said the reform strengthens the competitiveness of businesses and the Cypriot economy. The department is conducting training seminars for professional and business bodies to help them absorb the changes in the new legal framework.
The reform abolishes deemed dividend distribution, helping companies invest profits without particular tax burden, and scraps stamp duties—an outdated law applied since 1963.
The abolition of stamp duties will speed up business agreements, simplify procedures, reduce costs and strengthen efforts for new investments, according to the announcement.
Other key measures include independent taxation of cryptocurrencies at 8% on net profit, a special 8% rate for stock options up to €1 million per decade, and deductions up to €50,000 per tax year for donations and sponsorships to approved cultural institutions.
Companies listing shares on a recognised stock exchange for the first time can deduct listing expenses up to €300,000, whilst employers paying social insurance contributions to employees receive a super-deduction equal to double the additional contributions paid within the year.
The reform extends the 20% super-deduction for research and development expenses and accelerated capital allowances for green capital expenditures to expenses incurred up to 2030. Agricultural and livestock production capital expenditures receive accelerated capital allowances at 25%.
The period for carrying forward losses has been extended to seven years, benefiting small and medium-sized enterprises that face losses in their early years by allowing them to defer tax payments to future years when they become more profitable.
Transfer pricing documentation requirements have been significantly raised, with companies now required to maintain a Cyprus transfer pricing file for transactions exceeding €10 million for financing transactions, €5 million for goods trading and €2.5 million for other transactions.
Read more: