Cyprus

Inventory valuation

Inventories generally are stated at the lower of cost and net realisable value. Last in first out (LIFO) is not permitted for taxation purposes. First in first out (FIFO) is permitted. Conformity between book and tax reporting is not required.

Capital gains

Profits from disposals of corporate 'titles' are unconditionally exempt from CIT. 'Titles' are defined as shares, bonds, debentures, founders’ shares, and other titles of companies or other legal persons incorporated in Cyprus or abroad and options thereon. According to a circular issued by the Cyprus tax authorities, the term includes, inter alia, futures/forwards on titles, short positions on titles, swaps on titles, depositary receipts on titles, repos on titles, units in stock exchange indices on titles, and units in open-ended or closed-ended collective investment schemes (including, inter alia, undertakings for collective investment in transferable securities [UCITS], investment trusts and funds, mutual funds, and real estate investment trusts [REITs]).

Capital gains on Cyprus-situated immovable property (and on non-quoted shares directly or indirectly holding such Cyprus-situated immovable property) are taxed separately in Cyprus. See Capital gains tax in the Other taxes section for more information.

Dividend income

Dividends received from other Cyprus tax resident companies are exempt from all taxes, subject to certain anti-avoidance provisions, with the following exception: 

Dividends received in 2026 out of profits from the years ended 31 December 2024 or 2025 or dividends received in 2027 out of profits from the year ended 2025, are subject to 17%. This provision does not apply to the extent the Cyprus tax resident company receiving the dividend is directly or indirectly owned by (a) non-Cyprus tax residents or (b) Cyprus tax residents non-domiciled individuals. 

Dividends earned from foreign investments are exempt from CIT in Cyprus, with the exception of dividends that are deductible for tax purposes for the paying company. Such deductible foreign dividends are subject to CIT and are exempt from SDC. Other (i.e. non-deductible) foreign dividend income is also exempt (participation exemption) from SDC unless:

• more than 50% of the foreign paying company’s activities directly or indirectly result in investment income, and
• the foreign tax is significantly lower than the tax burden in Cyprus (i.e. an effective tax rate of less than 7.5% (up to 31 December 6.25%)). 

In those cases where the above-mentioned Cyprus participation exemption on foreign dividend income is not available, any foreign WHT imposition on dividends paid to the Cyprus company will be credited against the Cyprus flat SDC rate of 5% (17% up to 31 December 2025) on such dividends, without the need for a DTT to be in place with the paying jurisdiction. Furthermore, in some cases, a credit for underlying foreign tax (i.e. foreign tax on the paying company’s profits) is also available.

Stock dividends

A Cyprus corporation can distribute tax-free dividends of common stock (bonus shares) proportionately to all common stock shareholders (under conditions).

Interest income

See Special Defence Contribution (SDC) in the Taxes on corporate income section for a description of the tax treatment of interest income.

Royalty income

Royalty income is taxed under CIT, after deducting allowable expenses, at the rate of 15% (12.5% up to 31 December 2025). 

Cyprus has an intellectual property (IP) box fully aligned with the provisions of the OECD BEPS Action 5 report (modified) nexus approach as well as a grandfathered IP box (see Intellectual property [IP] box in the Tax credits and incentives section for more information).

Rental income

See Special Defence Contribution (SDC) in the Taxes on corporate income section for a description of the tax treatment of rental income.

Foreign currency exchange (forex) differences

Forex differences are tax neutral for CIT purposes (i.e. forex gains are not taxable and forex losses are not deductible). However, forex differences arising from trading in foreign currencies (and related derivatives) are subject to CIT.

Income from Crypto – Assets 

Furthermore, with effect as from 1 January 2026, gains from cryptocurrency transactions should be subject to income tax at the flat rate of 8%. This special mode of taxation does not apply for gains on crypto assets that were acquired through crypto mining. 

Foreign income

Resident corporations are subject to tax on their worldwide income. However, foreign PE income (see below), as well as most dividend and capital gains income from abroad (see Dividend income above), may be exempt from taxation in Cyprus.

Profits from a PE abroad are exempt from CIT, subject to anti-avoidance rules set out below.

The PE exemption is applicable, unless the below anti-avoidance rules apply:

• more than 50% of the foreign PE’s activities directly or indirectly result in investment income, and
• the foreign tax on the income of the foreign PE is significantly lower than the tax burden in Cyprus (i.e. an effective tax rate of less than 7.5% (6.25% up to 31 December 2025)). 

As from 1 January 2026, the exemption of foreign PE profits does not apply in case where the foreign permanent establishment is situated in a jurisdiction included on the EU list of non-cooperative jurisdictions on tax matters (commonly referred to as the EU ‘blacklist’). 

Losses of an exempt foreign PE are eligible to be offset with other profits of the Cyprus head office (and via group relief, see the Group taxation section). In such a case, future profits of an exempt foreign PE abroad become taxable up to the amount of losses previously allowed.

Taxpayers may irrevocably elect to subject to CIT foreign PE profits. 

Where foreign income is taxed in Cyprus, double taxation is avoided through granting tax credits for the foreign taxes, without the need for a DTT to be in place with the foreign jurisdiction. Transitional rules apply in certain cases on the granting of foreign tax credits where a foreign PE was previously exempt from taxation and subsequently a taxpayer elects to be subject to CIT on foreign PE profits.

Hybrid mismatch rules

See the Deductions section for further details on the hybrid mismatch rules.