Cyprus corporate tax 2026 reform: what changed (and what it means for IP)

What the 2026 Cyprus tax reform is, in one paragraph

On 1 January 2026, Cyprus enacted the most significant overhaul of its tax code in over a decade. The headline change is a rise in the corporate income tax (CIT) rate from 12.5% to 15%, bringing Cyprus into line with the OECD Pillar Two global minimum tax. Alongside the rate increase, the reform package eased the tax burden on individuals and companies elsewhere: the Special Defence Contribution (SDC) on dividends for domiciled residents was cut sharply, the deemed dividend distribution rules were abolished, tax losses can now be carried forward for longer, and the R&D super-deduction was extended.

For businesses using the Cyprus IP Box, the reassuring news is that the regime itself was left mechanically intact. The 80% notional deduction on qualifying profits remains, so IP Box companies continue to enjoy one of the lowest effective rates in the EU, even after the CIT increase. Below we set out precisely what changed, what stayed the same, and what the higher headline rate means in practice.

What changed on 1 January 2026

The reform touches both corporate and personal taxation. Here are the key changes at a glance:

• Corporate income tax rose from 12.5% to 15%, aligning Cyprus with the OECD Pillar Two 15% global minimum.
• SDC on dividends for domiciled residents was cut from 17% to 5%.
• The deemed dividend distribution (DDD) rules were abolished for profits arising from 2026 onward.
• Tax loss carry-forward was extended from 5 years to 7 years.
• The 120% R&D super-deduction was extended and remains available through 2030.
• The IP Box regime was left unchanged mechanically, keeping the 80% deduction on qualifying profits.
• 0% withholding tax on dividends paid to non-residents was retained.
• Non-Dom status was retained, keeping 0% SDC on dividends for qualifying individuals.

Why 15%? Pillar Two and the global minimum

The move from 12.5% to 15% is not arbitrary. It aligns Cyprus with the OECD's Pillar Two framework, which sets a 15% global minimum effective tax rate for large multinational groups with consolidated annual revenue of at least EUR 750 million. Under Pillar Two, if a group is taxed below 15% in a given jurisdiction, other countries can apply a top-up tax to reach the minimum. By raising its headline CIT to 15%, Cyprus reduces the risk that profits booked in Cyprus become the target of foreign top-up taxes.

It is worth stressing that Pillar Two itself only applies directly to groups above the EUR 750 million revenue threshold. The vast majority of Cyprus companies, including most IP Box users, fall well below that line. For them, the practical consequence of the reform is simply the higher domestic CIT rate, not the Pillar Two machinery.

Cyprus had held its 12.5% rate since 2013, and the increase brings it into the same band as several EU peers while remaining at the low end of the range. The government paired the rise with the offsetting reliefs described below, so the net effect for many domestic taxpayers and their shareholders is broadly neutral or even favourable, rather than a straightforward tax increase.

What stayed intact

Much of what makes Cyprus attractive to international businesses and their owners survived the reform untouched. The IP Box regime continues to offer an 80% notional deduction on qualifying intellectual property profits, calculated under the OECD-compliant nexus approach. There was no change to the qualifying assets, the nexus fraction, or the mechanics of the deduction.

Equally, the 0% withholding tax on dividends paid to non-resident shareholders remains in place, so profits can still be distributed out of Cyprus to foreign owners without a Cyprus dividend tax. And the Non-Domicile regime endures: qualifying individuals who are tax resident but not domiciled in Cyprus continue to pay 0% SDC on dividends and interest, a cornerstone of Cyprus's appeal to relocating entrepreneurs and investors.

Taken together, these retained features mean the core structure that draws IP owners, fund managers and holding companies to Cyprus survived the reform. The changes reshape the headline rate and tidy up parts of the personal tax system, but they do not disturb the building blocks that make Cyprus an efficient jurisdiction for holding and exploiting intellectual property.

What the higher CIT means for the IP Box

Because the IP Box grants an 80% deduction on qualifying profits, only 20% of those profits are exposed to corporate income tax. When CIT was 12.5%, this produced an effective rate of roughly 2.5% (12.5% x 20%). With CIT now at 15%, the effective rate becomes approximately 3% (15% x 20%).

In other words, the IP Box's benefit tracks the headline rate directly. The half-percentage-point increase in the effective rate, from around 2.5% to around 3%, is modest and leaves Cyprus among the most competitive IP regimes in the EU. The structural advantage, an 80% carve-out of qualifying income, is entirely preserved.

A related point concerns the R&D super-deduction. The 120% super-deduction on eligible research and development spend was extended through 2030, but it functions as an alternative to the IP Box, not a top-up you can claim alongside it. Businesses should model both routes and choose the one that yields the better outcome for their particular profile of income and expenditure.

• Effective IP Box rate before 2026: ~2.5% (12.5% CIT x 20% taxable share).
• Effective IP Box rate from 2026: ~3% (15% CIT x 20% taxable share).
• 80% notional deduction and nexus mechanics: unchanged.
• R&D 120% super-deduction: an alternative to the IP Box, not combinable with it.

Who is affected

The reform reaches different taxpayers in different ways. Trading companies without an IP Box election feel the full 2.5-point rise in CIT on their taxable profits. IP Box companies see only a marginal increase, from roughly 2.5% to roughly 3% on qualifying income. Domiciled Cyprus residents benefit meaningfully from the SDC cut on dividends, from 17% down to 5%, while Non-Doms are unaffected because they already paid 0% SDC.

Companies that historically triggered a deemed dividend distribution charge on undistributed profits will welcome its abolition for 2026 profits onward, which improves cash flow and simplifies compliance. And any business carrying tax losses gains breathing room from the extension of the carry-forward period from five to seven years.

• Ordinary trading companies: full impact of the 12.5%-to-15% CIT rise.
• IP Box companies: minimal impact, effective rate ~2.5% to ~3%.
• Domiciled residents: better off, SDC on dividends cut 17% to 5%.
• Non-Doms: unaffected on dividends, still 0% SDC.
• Groups with revenue over EUR 750m: within scope of Pillar Two.

Action points

The 2026 reform is, on balance, benign for IP-rich businesses in Cyprus. Still, a few practical steps are worth taking as the new rules bed in.

• Recalculate your effective IP Box rate at ~3% and update any financial models or investor materials.
• If you claim R&D relief, compare the 120% super-deduction against an IP Box election, as you cannot use both.
• Domiciled shareholders should revisit dividend planning given the 5% SDC rate.
• Review loss positions to make full use of the extended 7-year carry-forward.
• Large groups should confirm their Pillar Two status against the EUR 750m threshold.
• Take professional advice before acting; this guide is indicative and not tax advice.