Cyprus: 2026 Tax Reforms and Strategic Corporate Restructuring
The recent tax law amendments implemented in Cyprus - effective as of 1 January 2026 - deny expense deductions to interest and royalty payments to associated companies in low-tax jurisdictions with a corporate tax rate below 6.25%. This rule is expected to become even stricter - if the Parliament approves further tax reform proposed by the Government, from 1 January 2026 expense deductions will be denied to interest and royalty paid to jurisdictions with corporate tax rate below 7.5%. In addition, 17% withholding tax as of 1 January 2026 again applies to payments to low-tax jurisdictions, bringing them into the same tax net as EU tax non-cooperative jurisdictions.
At the same time, Cyprus now has attractive 2.5% effective tax rate IP Box Regime (expected to increase only slightly to 3% from 1 January 2026) and up to 80% Notional Interest Deduction on new equity. In addition, from 1 January 2026, the proposals provide for Cyprus to cancel deemed dividend distribution, extend loss carry-forward from its current 5 years to 7 years, and reduce dividend tax for Cyprus-domiciled tax resident individuals from 17% to 5%.
But how can a company in a low-tax jurisdiction enjoy Cyprus tax incentives without suffering the tax drawbacks? The company can be redomiciled to Cyprus or establish in Cyprus genuine commercial presence with an office, Cyprus-resident directors and staff. It may also be possible to restructure the intercompany financing, IP licensing and royalty flows.
It is advisable to review the group structures and payment flows, identify companies in low-tax jurisdictions, and find the best and compliant way to utilise Cyprus tax incentives.
Consulco’s legal and tax advisory team will be happy to assist you with tax advice, substance, compliance, corporate restructuring and redomiciliation.
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