Client overview (effective 1 January 2026)
Cyprus introduced a package of corporate tax updates effective 1 January 2026. These changes can affect your profitability modelling, budgeting, loss utilisation, distribution planning, and compliance positioning. Below is a clear, easy-to-read summary of what matters most.
The most important changes
1) Corporate Income Tax (CIT) increases to 15%
The CIT rate increases from 12.5% to 15% for profits arising from 2026 onwards.
Why it matters: update budgets, pricing assumptions, effective tax rate (ETR) modelling, and deferred tax positions.
2) Tax loss carry-forward extended to 7 years
Tax losses can generally be carried forward for 7 years (previously 5).
Why it matters: better flexibility for growth-stage companies, longer ramp-up periods, and restructuring timelines.
3) Deemed Dividend Distribution (DDD) abolished for post-2026 profits
DDD is abolished for profits earned from 1 January 2026, while transitional rules may still apply to earlier-year profits.
Why it matters: profit retention and distribution strategy should be revisited; retained earnings should be tracked clearly by year.
4) Substance & documentation become even more important
The reform direction reinforces the importance of strong governance, clear documentation, and defensible tax positions (including substance-based incentive claims where relevant).
Why it matters: better audit trail and internal controls reduce risk and support your tax treatment.
What you should do now (quick checklist)
- Update 2026+ budgets and ETR models (including deferred tax).
- Review your profit retention / dividend policy, especially around transitional considerations for pre-2026 profits.
- Stress-test pricing, margins, cash flows, and intercompany arrangements.
- Strengthen compliance readiness: board governance, documentation, and internal controls.
Adopt the changes to your business model
If your company operates in Cyprus (or uses Cyprus in its structure), these updates should be reflected in your business model and tax planning for 2026 and beyond.
Book an initial consultation
Book an initial consultation with a trusted Certified Accountant and Auditor in Cyprus to:
- assess the impact on your current structure and profit flows,
- update forecasts and compliance approach, and
- implement a practical, defensible model aligned with the 2026 framework.
Disclaimer: This overview is for general information only and does not constitute tax, legal, or accounting advice. The application of the rules depends on the specific facts and circumstances.
