Cyprus: should you be concerned about the сorporate tax rate increase?

If you own a business in Cyprus or you’re thinking about setting one up, you’ve probably heard a big piece of news: Cyprus is planning to raise its corporate tax rate from 12.5% to 15%. This marks a significant change for a country that’s built much of its reputation as a business-friendly hub around low taxes. But before you panic—or get too excited—let’s break down what this means for you, your business, and for Cyprus itself.

There’s plenty of noise online about shifting tax policies, but as with most things in international law and tax, the devil is in the details. Let’s explore the proposed changes, their timeline, the likely impact, and how you can adapt, whether you’re already based in Cyprus.

Why is Cyprus raising its corporate tax rate?

Cyprus isn’t raising taxes just for the sake of it. Globally, tax policy is moving towards unified rules to prevent companies from shifting profits to ultra-low-tax jurisdictions—a move led by the OECD and the EU. The main goal here is to establish a minimum corporate tax rate of 15% on large multinational enterprises (specifically, those with consolidated annual revenues over €750 million). That’s the “Pillar Two” project you might have read about.

But Cyprus has decided it’s easier and cleaner to apply this rate across the board, for all companies, large and small, rather than just the multinationals. The idea? Compliance, clarity, and continued access to international markets. Plus, it helps Cyprus present itself as a responsible, progressive player in global finance—something investors still care about.

What exactly is changing—and when?

Here’s what’s confirmed and what’s still in the air. Currently, Cyprus’s standard corporate income tax is 12.5%. Under the proposed reform, this rises to 15%. The plan is for the new rate to apply to financial years starting on or after 1 January 2026.

As of mid-2025, the legislation isn’t yet finalized. There’s an ongoing process of public consultation, amendments, and debate in the Cyprus Parliament. This means that while the increase is very likely, details can still change. For now, the 12.5% rate remains until the law is officially passed.

Which companies are affected by the tax hike?

Previously, only large multinationals (those €750 million+ giants) were targeted by the international minimum tax rules. Now, with Cyprus’s reforms, nearly every company established or managed from Cyprus will face a 15% tax rate. This includes local SMEs, startups, and traditional businesses—so the change is wide-reaching.

However, and this is crucial, Cyprus is keeping a bunch of its key tax features and incentives. So, even with a higher rate, your effective tax burden might remain very competitive.

What perks does Cyprus keep on the table?

Cyprus is not throwing away its tax-friendly playbook. Some top incentives you’ll still get include:

• Exemption on foreign branch profits (with option to disapply).
• Unilateral foreign tax credits on any taxes withheld abroad.
• Notional Interest Deduction (NID): You can deduct up to 80% of otherwise taxable income if you use new equity to fund your company.
• IP Box regime: Enjoy up to 80% exemption on qualifying IP profits.
• No recapture or clawback of amortization on sale of intangibles.
• Dividend participation exemption—no minimum holding or period required (very rare in Europe).
• Unconditional exemption on gains from selling shares, bonds, and other corporate titles.
• No withholding tax on outbound dividends, interest, and most royalties (unless paid to blacklisted jurisdictions).
• Tax neutrality on foreign exchange (FX) gains/losses.
• Tax losses carry-forward: Authorities might extend the carry-forward period from five to ten years (the exact detail here is still under review).
• Tonnage tax regime for shipping remains untouched and competitive.
• Group relief for losses preserved.

Bottom line: The nominal tax rate goes up, but Cyprus keeps the goodies that made it attractive in the first place.

How does Cyprus stack up against other countries?

Let’s put it into context. Even at 15%, Cyprus stays among the most tax-competitive places in Europe:

• Ireland: Remains at 12.5% for many companies, but large multinationals already face 15% under OECD rules.
• Netherlands: Around 25.8%.
• Germany: Effective rates often exceed 30%.
• UAE: 9% (but only on profits above a certain threshold; few treaties with Europe).
• Luxembourg: Between 17% and 24%.
• Malta: 35% statutory, but most businesses get refunds, so the effective rate is often around 5-10%.

Many competitors have higher rates, but some use deductions or special regimes to lower the effective tax actually paid. Cyprus, however, maintains a genuinely simple, transparent system—part of its unique appeal, especially for SMEs and holding companies.

Does this mean Cyprus will lose its edge?

Not necessarily. Yes, one of its key selling points was its low flat rate. But few countries combine such a rate with the level of exemptions and business-friendly rules you find in Cyprus. Its legal system is based on English common law, it has a highly skilled workforce, robust professional services, and a vast network of double tax treaties.

Moreover, Cyprus is likely to introduce new incentives to counterbalance the increased rate: think green economy perks, digital transformation benefits, and streamlined rules for family business reorganizations.

For international investors and entrepreneurs, Cyprus still offers:

• Simplicity in administration and compliance.
• Reliable courts and legal protection.
• Political stability (in an often-turbulent region).
• Access to the EU, without the regulatory burden of the big economies.

Plus, if you’re using Cyprus for IP structuring, group finance, or holding investments, most of the core benefits remain intact.

What practical steps should entrepreneurs and companies take?

If you’re already in Cyprus, or planning your Cyprus incorporation, now’s the time to:

• Review your corporate structure and assess whether you benefit from deductions like the NID or IP Box.
• Model your effective tax rate after accounting for available exemptions.
• Prepare for compliance: Keep up with local accounting requirements and reporting deadlines.
• Monitor the legislative process: Final tax reforms may adjust carryforward rules, group relief, and other mechanics.
• Evaluate relocation plans only with a full understanding of comparative advantages; don’t assume another EU country will automatically be better.
• Watch for new incentives, especially if your business is in technology, digital transformation, or the green economy.

What about individuals and non-profits?

The reforms are primarily directed at businesses, but there are side changes in the works for other taxes, such as potential relaxations in dividend tax (Special Defence Contribution) for resident individuals, and simplifications in rental income taxation. Most non-profits, particularly those limited by guarantee, aren’t caught by the corporate tax rate increase unless they operate substantial unrelated businesses.

Final thoughts: Opportunity or threat?

When a jurisdiction changes its core tax offering, it’s easy to focus on the negatives. But in the evolving landscape of international tax, sticking out too much can be a risk in itself. Cyprus, by aligning with OECD and EU standards while preserving key incentives, is staking its claim as a safe, reliable, and still highly attractive destination for investment and entrepreneurship.

The increase to 15% is real, but so are the benefits of Cyprus. If you’re smart about structuring and plan ahead, it’s likely you can still achieve a tax-efficient, legally-compliant setup for your business.