Cyprus has long been considered one of the best destinations for the establishment of holding companies. And 2026 can be called a critical turning point since the Cypriot government implemented its biggest tax overhaul in 20 years. Yet, despite all changes, it did not become less attractive. Let us consider everything that the holders of foreign business structures should know to make the most of Cyprus after tax reform in 2025.
The Major Change and What It Means
On December 22, 2025, the parliament of Cyprus approved several key changes, becoming effective from January 1, 2026. The first and most publicized of them was increasing the corporate income tax rate from 12.5% to 15%. This figure was widely discussed internationally. However, in fact, the reform brought not only downsides but also major advantages.
- Abolishing of Deemed Dividend Distribution (DDD). Under the previous legislation, companies were obliged to annually distribute dividends, representing 70% of net income every two years and pay corporate taxes regardless of the intention. Starting from January 2026, businesses will be able to control distribution.
- Special Defence Contribution (SDC) decreased from 17% to 5% in case of dividends paid from Cyprus-based business structures to resident beneficiaries. For Non-Domiciled persons, the rate remained equal to zero.
- The ability to apply tax loss carry-forward period expanded to 7 years.
- Abolishment of stamp duty on commercial activities.
- Expanding the super-deduction rate on research and development expenses up to 120%.
The Things That Have Remained Unchanged and Their Impact
Several crucial factors of Cyprus' tax advantages stayed unaffected during the reform namely, those that made it so popular among foreign investors.
- The participation exemption scheme is completely untouched, implying that dividends paid to residents from companies and capital gains earned by selling shares do not require tax payments.
- Dividends and other kinds of income paid to foreign non-residents still remain tax-free.
- The Cyprus Double Tax Treaty network (over 65 treaties) stays untouched.
- The regime of IP box still offers an effective tax rate equal to 2.5% on IP income.
The latter four points are especially valuable for foreign holding companies, meaning that most of the benefits that have been enjoyed for years stay available.
Foreign Direct Investments (FDI) Screening: A Practical Point to Remember
As of April 2, 2026, Cyprus joined the network of countries having a regulatory framework for pre-completion notification of investment in strategically significant industries. Investors acquiring stakes in companies dealing with infrastructure, technology, and supply chains need to notify the authorities in advance.
Tip for practice: although this applies mostly to investments within the specified sectors, it is still vital to consider the possibility when setting up a commercial structure in Cyprus. In addition, it might be required to provide all necessary documents, including information on the ownership structure, sources of finance, and deal terms in order to get a clear and quick FDI approval.
Substance Requirement Is No Longer a Myth
The general trend in almost every reform is that the enforcement of all requirements becomes stricter and stricter, leading to closer inspection of structures existing only on paper.
Tip for practice: today, every Cyprus-based company should be prepared to prove that they really exist and have economic substance. This means that they must have local directors with decision-making rights, regular board meetings, and local accounting. The firm providing such services will be more credible in any interaction, whether that is a deal or a tax audit.
Today, the specialists dealing with the management of international structures are advised to consider this requirement in detail. Among the firms helping businesses in compliance matters is ComplyClobally, which focuses on international tax matters.
Practical Advice to Holders of Foreign Business Structures in Cyprus
- Create separate pools of your earnings depending on the date of earning them. This way, you will be able to see what tax regime each of them belongs to.
- Review your dividend distribution strategy to take maximum advantage of the current opportunities.
- Take care of your property-rich structure. The new criterion for the tax on the gains of the sale is the percentage of 20%, rather than 50%.
- Take care of your corporate hygiene. All documents required by laws must be updated at all times.
- Use experts in international taxation and compliance. Since Cyprus operates within the frameworks of European Union laws, OECD Global Minimum Tax Standards, and its Double Tax Treaty network, it is crucial to find a professional who understands all this.
Conclusion
Thus, the recent reforms did not make Cyprus worse, rather the opposite. After implementing the Global Minimum Tax Standards, the government kept the advantages of the jurisdiction that made it attractive for business. These included, first of all, the absence of withholding taxes, participation exemptions, extensive treaty network, and an efficient system for Non-Domicile taxpayers.
And that’s where experienced guidance quietly makes a difference. Firms like ComplyGlobally, which focus on cross-border compliance management, tend to approach structuring not as a one-time setup but as an ongoing discipline helping businesses stay aligned as regulations evolve. In the current environment, that ongoing alignment is not an extra layer. It's the foundation
The author is the Chairman of the Connect Ventures Group of Companies, a visionary strategist often described as an "engineer by mistake and a management guru by choice." With a mission to empower Indian entrepreneurs the "economic soldiers" of the nation he has dedicated his career to bridging the gap between local ambition and global scale. Under his leadership, Connect Ventures has grown into a cross-border powerhouse, serving nearly 1,000 clients ranging from startups to billion-dollar listed brands. His latest initiative, ComplyGlobally.com, is revolutionizing how Indian businesses expand internationally. The platform provides a 100% remote, seamless solution for managing complex regulatory and tax compliance across more than 45 countries, including major hubs like the USA, UK, Singapore, and the UAE. A recognized global convenor and recipient of numerous accolades, including the " Most Promising Corporate Services Provider for Startups," Dr. Gupta operates on four core promises: speed of action, accuracy, ease of engagement, and cost competitiveness.
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