Personal Taxation in Cyprus after the 2026 Reform

The tax reform which entered into force on 1 January 2026 is the most significant revision of personal taxation in Cyprus in over a decade. It widened the income tax bands, cut the rate of Special Defence Contribution on dividends, abolished it on rents, and left the non-domicile regime intact.

This article sets out how an individual is taxed in Cyprus today, and why domicile, rather than residency alone, determines the real numbers.

Cyprus taxes on the basis of residence. An individual who is tax resident in Cyprus (under the 183-day test or the 60-day rule) is liable to personal income tax on worldwide income. An individual who is not resident is taxed only on specific categories of income arising in Cyprus and under certain conditions, such as employment exercised on the island, rents from Cypriot property or profits of a Cypriot permanent establishment. Residency is therefore the threshold question in every case. It is determined by the statutory tests alone: an individual who satisfies either of them is a Cyprus tax resident.

Income tax is charged on a progressive scale. The reform raised the tax-free threshold from €19,500 to €22,000 and moved every band upwards, with the top rate of 35% now applying only to income above €72,000 rather than €60,000. The bands in force from 1 January 2026 are as follows:

For comparison, the bands applicable up to and including the 2025 tax year were:

The practical effect is a reduction at every level of income. An individual earning €60,000 paid €10,885 in 2025 and pays €9,900 in 2026; at €100,000 the liability falls from €24,885 to €23,300. These figures are before the separate exemptions available to individuals taking up employment in Cyprus for the first time, which can exempt up to 50% of remuneration for a period of years and are addressed in a separate note.

Special Defence Contribution (SDC) is a separate tax on passive income. It is what makes the distinction between domiciled and non-domiciled residents so important, because it applies only to individuals who are both tax resident in Cyprus and domiciled in Cyprus for SDC purposes. Where it applies, it does so in place of income tax on the income concerned, not in addition to it.

• Dividends. SDC is charged at 5% on dividends paid out of profits of tax year 2026 onwards. Dividends paid out of profits of earlier years remain subject to the former rate of 17%, under transitional provisions. The deemed distribution rules, under which 70% of undistributed profits were treated as distributed after two years, have been abolished for profits arising from 2026.
• Interest. SDC is charged at 17% on interest. A reduced rate of 3% applies to interest on government bonds of Cyprus and, from 2026, of any other EU Member State, and on listed corporate and municipal bonds. Interest earned in the ordinary course of a business is treated as trading income and taxed under income tax rather than SDC.
• Rents. SDC on rental income was abolished with effect from 1 January 2026. Up to 2025 it applied at an effective rate of 2.25%, in addition to income tax. Rents are now subject to income tax only, and short-term lettings through online platforms have in any event been treated as business income since 2023.

Non-residents pay no SDC on any income. Neither do residents who are not domiciled in Cyprus. For a non-domiciled resident, dividends and interest — from Cyprus or from anywhere in the world — are received free of Cyprus tax.

Domicile for SDC purposes is determined by reference to the Wills and Succession Law. Every individual acquires a domicile of origin at birth, normally that of the father. An individual whose domicile of origin is outside Cyprus is treated as domiciled in Cyprus for SDC purposes only after having been tax resident for at least 17 of the 20 years preceding the tax year in question. A foreign investor who takes up residence in Cyprus is therefore non-domiciled from the first day and remains so for 17 years, provided the status is applied for and confirmed by the Tax Department. Individuals with a Cypriot domicile of origin are subject to more detailed rules and may, in certain circumstances, also qualify.

The 2026 reform preserved this framework in full and, for those who wish to remain beyond the initial period, introduced the option of adding 10 years to their non-domicile status on payment of a fee. Anti-abuse provisions apply, as they always have, to arrangements designed to exploit the status artificially.

A foreign individual who becomes tax resident in Cyprus and obtains non-domicile confirmation pays income tax on a progressive scale with the first €22,000 exempt, pays no Cyprus tax on dividends or interest in Cyprus from any source for 17 years, pays income tax alone on rents, and is outside the charge to tax on gains from the disposal of shares and securities. There is no inheritance, gift or wealth tax.

The 2026 reform did not dilute this framework; it reinforced it, and no other Member State of the European Union currently offers an equivalent.

This article provides general information on the law in force at the date of publication and does not constitute tax or legal advice. Individual circumstances vary and should be assessed on their own facts.