Cyprus

Corporate income tax (CIT)

All companies that are tax residents of Cyprus are taxed on their income accrued or derived from all sources in Cyprus and abroad. A non-Cyprus tax resident company is taxed on income accrued or derived from business activity that is carried out through a PE in Cyprus and on certain other income arising from sources in Cyprus.

As from 1 January 2026 the standard CIT rate in Cyprus is 15% (12.5% up to 31 December 2025). 

As of 1 January 2019, controlled foreign company (CFC) rules apply, i.e. non-distributed profits of CFCs directly or indirectly controlled by a Cyprus tax resident company may become subject to tax in Cyprus (certain exceptions may apply). See the Group taxation section for more information.

The Cyprus CIT law explicitly provides for a number of exemptions for many and varied types of incomes, profits, and gains (see the Income determination section for more information).

Cyprus, as an EU member state, has transposed the EU Directive on global minimum tax for multinational enterprise groups and large-scale domestic groups into its national law, with effect from 1 January 2024. The Law provides that the main rule named as the Qualified Income Inclusion Rule (QIIR) is practically effective as of 2024, the secondary rule named as the Qualified Undertaxed Profits Rule (QUTPR) is practically effective as of 2025 (the QUTPR will be imposed as an additional top-up tax, rather than a denial of deduction mechanism administered through the Cyprus Corporate Income Tax law).

Aligning with the QUTPR, the Law provides for the introduction of a Cyprus Domestic Minimum Top Up Tax  (DMTT) practically as from 2025. It applies to constituent entities and joint venture entities located in Cyprus and will be applied in priority to the QIIR and QUTPR. In the same manner as the QIIR and the QUTPR, the DMTT includes the same provisions with respect to the specific allocation of covered taxes incurred by other constituent entities, such as for the so-called ‘push-down’ of Controlled Foreign Company (“CFC”), Head Office as well as Hybrid Entity taxes unlike a QDMTT does. Further, the DMTT respects the safe harbor provisions (such as the Transitional CbCR Safe Harbour) and clarifies the initial phase of the international activities exemption will also be applicable in full alignment to the QIIR.

Special Defence Contribution (SDC)

SDC is imposed only on non-exempt dividend income, 'passive' interest income (up to 31 December 2025, as from 1 January 2026 companies’ interest income is always subject to CIT), and rental income (up to 31 December 2025) earned by Cyprus tax resident companies and Cyprus PEs of non-Cyprus tax resident companies. Non-tax residents of Cyprus with non-Cyprus PEs are exempt from SDC.

Dividend income may be exempt from SDC, subject to participation exemption criteria (see Dividend income in the Income determination section).

Up to 31 December 2025, interest received by companies in the ordinary course of their business, including interest closely connected to the ordinary course of business, is also considered as ‘active’ interest income and is only taxed under CIT (after deducting allowable expenses) at the standard CIT rate of 12.5%.

Up to 31 December 2025, when companies receive interest that does not satisfy the conditions prescribed immediately above, the interest is considered to be ‘passive’ interest income, which is subject to SDC (without expense deduction) at the rate of 17%. Such ‘passive’ nature interest is, however, exempt from CIT.

As from 1 January 2026, all interest income earned by companies is subject to CIT at the rate of 15% and exempt from SDC. 

Interest received by close-ended or open-ended collective investment schemes (CISs) is never subject to SDC as it is considered as ‘active’ interest income and is subject to CIT. 

“Passive interest income” earned by companies up to 31 December 2025: 

As of June 2022, 'passive' interest income earned from Cyprus government bonds, Cyprus and foreign corporate bonds listed on a recognised stock exchange, and bonds issued by Cyprus state organisations or by Cyprus or foreign local authorities listed on a recognised stock exchange shall be subject to SDC at the reduced rate of 3%. Moreover, as of 8 June 2022, Cyprus state organisations and local authorities, pension funds, provident funds, and the Cyprus Social Insurance Fund will be subject to SDC at the reduced rate of 3% on all interest income that they earn. Finally, as from 1 January 2026, the reduced rate of 3% applies also to all interest income earned by a general government entity and health insurance fund.

Up to 31 December 2025, gross rental income reduced by 25% is also subject to SDC at the rate of 3% (i.e. effective rate of 2.25%) in addition to CIT (after deducting allowable expenses) of 12.5%. As from 1 January 2026, rental income is subject only to CIT (after deducting allowable expenses) of 15%. 

On 13 September 2023, the Cyprus Tax Authority (CTA) issued a Circular pursuant of which rental income from self-catering accommodation that is rented out via online platforms will be treated, subject to certain conditions, as business income (therefore subject to CIT and exempt from SDC).

Tonnage tax

For ship-owning companies, the profits derived by the owner of a ship registered in the European Union or European Economic Area (EEA) (as well as other foreign jurisdictions, subject to conditions) from its operation/charter out are fully exempt from all direct taxes. The term 'owner' includes a bareboat charterer of a non-Cyprus flag vessel parallel registered in Cyprus. A similar exemption applies to charterers and ship managers.

Bareboat charter out agreements remain eligible for tonnage tax, with restrictions introduced for bareboat charter agreements to third parties. 

Instead of CIT, ship owners, charterers, and managers pay tonnage tax on the net tonnage of the ships they own, charter, or manage. For shipowners, there are also incentives provided for environmentally friendly Cyprus and/or EU/EEA flag vessels that can lead to a lower (up to 30%) tonnage tax liability. In addition, there is no tax on dividends paid at all levels of distribution by the above persons out of profits subject to tonnage tax and there is no taxation on the sale or transfer of a ship, share in a ship, or shares in a ship-owning company and their distributions. The same legislation also provides for income tax exemption of the salaries and benefits of the captain, the officers, and the crew aboard Cyprus and EU/EEA qualifying flag vessels engaged in qualifying activities.

This treatment applies until 31 December 2029 and is compulsory for Cyprus flag ship owners, but optional for other ship owners, charterers, and ship managers.

Pillar 2

Cyprus implemented the Income Inclusion Rule of the EU Pillar 2 Directive as of 31 December 2023 and the UTPR as of 31 December 2024, in line with the EU Pillar Two Directive. Cyprus legislation is almost entirely in line with the Directive. Entities established in Cyprus that are part of a (multinational or large domestic) group with a consolidated group turnover of at least EUR 750 million will fall within the scope of the new legislation. Certain sectors, such as investment funds and pension funds, are outside the scope of Pillar Two.

Aligning with the UTPR, the Law provides for the introduction of a Cyprus DMTT practically as of 31 December 2024. It applies to constituent entities and joint venture entities located in Cyprus and will be applied in priority to the IIR and UTPR. In the same manner as the IIR and the UTPR, the DMTT includes the same provisions with respect to the specific allocation of covered taxes incurred by other constituent entities, such as for the so-called ‘push-down’ of Controlled Foreign Company, Head Office as well as Hybrid Entity taxes unlike a QDMTT does. Further, the DMTT respects the safe harbor provisions (such as the Transitional CbCR Safe Harbour) and clarifies the initial phase of the international activities exemption will also be applicable in full alignment to the Cyprus IIR.

For more detailed information and the most recent updates, please visit PwC’s Pillar Two Country Tracker.

Local income taxes

There are no local government taxes on income in Cyprus.