As of 1 January 2026, the long‑debated tax reform, one that has been a source of extensive public discussion and political disagreement, has officially come into force. Recent media coverage has primarily focused on how these amendments will affect domestic taxpayers and households. Yet the key question remains: Is this truly the reform the market anticipated, especially from the perspective of foreign investors?
Several laws have been amended, including the Income Tax Law, the Special Defence Contribution Law, the Collection of Taxes Law, and the Capital Gains Tax Law.
Given the relevance to international entrepreneurs and investors, this article focuses mainly on the amendments to the Income Tax Law.
Below are the most notable changes introduced:
Key Amendments to the Income Tax Law
* Corporate Income Tax (CIT) rate increased from 12.5% to 15%.
* Tax loss carry-forward extended from 5 to 7 years.
* New fixed tax rate of 20% on payment amounts exceeding €200,000 related to retirement (including early retirement), termination, appointments.
* Redemption of fund units: From 1 January 2031, net proceeds from the redemption of fund units will be treated as dividends rather than disposal of titles.
* Additional R&D deduction: Introduction of a 20% “super tax deduction” on qualifying scientific research and R&D expenditure from 2025-2030.
* Amortisation of intangible assets: Intangibles with indefinite useful life will be amortised over 20 years.
* Individual income tax brackets: Tax‑free threshold increased from €19,500 to €22,000.
* Main residence incentives: Interest on loans or rent paid for a primary residence becomes tax‑deductible.
* Crypto taxation: Introduction of an 8% flat tax on gains from cryptocurrencies.
These represent only some of the major adjustments affecting individuals and businesses alike. At first glance, one could argue that this is not a transformative “reform” but rather a series of adjustments, many of which provide relief to the middle class, without directly addressing what might attract a foreign investor to establish or relocate a business in Cyprus.
In recent years, Cyprus has positioned itself as an emerging hub for startups, particularly in the fintech and innovation sectors. This ambition has been supported by initiatives such as the IP Box Regime, which has now been further strengthened through the 20% super deduction for scientific research and R&D.
However, many in the market expected broader, more strategic incentives aimed directly at foreign businesses and investors. While this may not have fully materialised, the reform does include one critically important development.
One of the most important amendments brought with this reform was the taxation of employment-related benefits, with one of the most notable developments being the introduction of new Article 20D of the Income Tax Law. This provision establishes, for the first time, a clear and structured framework for the preferential taxation of employee share-based incentives, providing for an autonomous tax rate of 8% on benefits arising from approved stock option or share incentive schemes granted to employees and directors. The regime is subject to specific conditions, including:
* prior approval of the incentive plan by the Tax Commissioner,
* a minimum three-year vesting period, non-transferability of the rights prior to vesting, and
* a minimum exercise or acquisition price.
In addition, the benefit eligible for the reduced rate is capped both annually, by reference to the employee’s remuneration, and over time, with an overall limit of €1,000,000 per rolling ten-year period, ensuring proportionality and safeguarding against abuse.
The importance of Article 20D is particularly pronounced for startups and high-growth companies, where equity-based incentives are a core mechanism for attracting and retaining talent in the absence of significant cash resources. By introducing a predictable and internationally competitive tax treatment for employee share schemes, Cyprus significantly reduces the effective tax burden compared to ordinary employment income taxation and enhances legal and tax certainty for founders, employees, and investors alike. This reform strengthens Cyprus’s position as a viable hub for startups, scale-ups, and innovative businesses, while also enhancing its appeal as a destination for foreign investment, skilled professionals, and entrepreneurial activity seeking a stable, transparent, and business-friendly tax environment.
Although many stakeholders feel that this reform does not fully meet expectations and may fall short of the transformative package some anticipated, it nonetheless introduces several noteworthy provisions. Both residents and future investors may benefit from these changes, which aim to support the economy in a more stable and sustainable manner. As with any reform, its true impact will only become clear over the coming years, as businesses and investors adapt to the new landscape.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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