Cyprus Tax reform and private wealth: Considerations for Cyprus domiciled investors

In today’s rapidly evolving international tax and economic environment, Cyprus recognised the need for a tax reform. The Tax Reform Project, commissioned by the Ministry of Finance to the Economic Research Centre of the University of Cyprus, was a two-year national initiative to amend Cyprus’ tax system. Its core principles were to ensure a fairer distribution of the tax burden while preserving fiscal neutrality and maintaining macroeconomic stability. After a long public consultation process, the tax reform bills were finalised, voted and came into effect on 1 January 2026.

Key changes impacting Cyprus tax-residents and Cyprus-domiciledinvestors

The most significant change of the tax reform impacting a Cyprus tax-resident, Cyprus-domiciled (dom) investor is the reduction of taxation on dividend income from 17% to 5% along the abolition of the deemed distribution rules on corporate profits earned after 1 January 2026.

Before the reform, dom individuals would pay 17% tax on dividends, whereas Cyprus tax-resident non-Cyprus domiciled (non-dom) individuals would pay nil. This difference created friction within the tax-paying community and fostered perceptions of inequality, as it placed doms at a competitive disadvantage and discouraged local investments and entrepreneurship.

Furthermore, the reform introduced several other changes impacting doms, mainly including:

• an increase in corporate incometax rate from 12.5% to 15%;
• an increase of the nil-rate band for individuals from €19.500 to €22.000, while the personal income tax bands have been shifted upwards;
• a change on how interest income accrued by companies is treated, now subject to corporate income tax at 15% and exempt from Special Contribution for the Defence (SDC), whereas interest income earned by individuals remains exempt from income tax but subject to SDC and
• the introduction of a special mode of taxation for cryptocurrency gains, applying a flat 8% tax rate.

Overall, the reform aims to create a more balanced tax environment for investors. Those with international portfolios, should assess how these changes affect their net returns and consider adjusting their financialstrategies to optimise after-tax income.

Planning ahead

With these changes in mind, a dom investor should reconsider business and investment holdings, including the appropriate holding structures.

Business profits (salary vs dividend)

The abolition of the deemed distribution rules and the reduction of the dividend tax rate to 5% may encourage domiciled individuals to reconsider the balance between dividends and salaries, as the latter remains subject to progressive income tax rates reaching up to 35%. It is worth highlighting that the Tax Department (TD) aimed to introduce the concept of an arm’s-length salary; a provision not finally voted into law enacted, however may be revisited in future legislative updates.

Interest income (personal vs corporate holding)

Prior to the reform, interest income earned by a Cyprus tax‑resident individual could, in certain cases, be treated as active business income and taxed at progressive rates up to 35%. From 1 January 2026, a dom investor personally holding a bond portfolio earning interest income from specific sovereign (Cyprus/EU government) or listed corporate bonds would only be taxed at 3% SDC, irrespective of whether such interest is considered as active or passive.

In comparison, if the same bond portfolio is held by a Cyprus tax-resident company owned by a dom investor, the interest income would be subject to 15% corporate income tax, after allowing for qualifying expenses (whether notional or actual). Moreover, a further 5% tax would apply when profits are distributed as dividends to the domiciled investor. Therefore, the selection of both the type of bonds and their holding structure (personal vs company) can materially affect the overall tax outcome.

Gains from disposal of qualifying securities

One important feature of the Cyprus tax framework remains unchanged: gains arising from the disposal of qualifying securities continue to be exempt from tax. However, the evolution of financial markets and the introduction of new instruments have highlighted the need for the TD to update and clarify what constitutes a “qualifying security” for the purposes of this exemption. A clarifying circular is expected, providing a more comprehensive list and greater certainty for investors, particularly in relation to newer products such as ETFs.

Gains from commodity trading

A Cyprus dom investor personally trading in physical commodities like oil, gold and silver, will be subject to progressive income tax rates up to 35%, as physical commodities do not qualify as tax-exempt securities. Conversely, a Cyprus tax-resident company trading in commodities would be subject to 15% corporate income tax, after allowing for qualifying expenses (either notional or actual), and in addition 5% tax would apply upon the payment of a dividend distribution to the domiciled investor.

Gains from cryptocurrencies

Cryptocurrency gains earned by a dom investor would be subject to a flat 8% tax, irrespective of irrespective if it’s an active or passive gain. If such a gain is earned by a Cyprus tax-resident company, it would also be subject to 8% tax, with , a further 5% tax when the profits are distributed as dividends to the domiciled investor.

The Cyprus tax reform introduces both opportunities and trade‑offs for Cyprus tax‑resident, Cyprus‑domiciled investors. Strategic planning is advised to explore any potential tax benefits. Any decision to adjust the holding of an investment portfolio requires careful consideration of all the relevant facts and circumstances, as well as an appropriate tailored tax analysis.

Published in The Cyprus Journal of Wealth Management, on behalf of Eurobank Cyprus