The 2026 Cyprus Tax Reform changes how interest, rental income and certain shareholder benefits are taxed. This matters for anyone holding assets or structuring investments through Cyprus, especially if you earn interest, collect rent or use company assets personally.
- Interest Income: Clearer Rules for Companies and Individuals
For companies, interest income is now taxed only under the Income Tax Law at the 15% corporate tax rate and is no longer subject to Special Defence Contribution (SDC). This removes the previous situation where some interest could attract SDC on gross amounts.
For individuals, interest is no longer taxed under income tax. Instead:
- It is subject to SDC at 17% on the gross amount.
- A reduced 3% SDC rate applies to interest from certain government and listed securities.
- Non‑dom individuals continue to enjoy 0% SDC on interest, so many international investors are not affected at this level.
This clearer split between companies and individuals can help HNW investors, family offices and funds plan where to hold liquid assets and financing instruments.
- Rental Income: No More SDC, but Stricter Payment Rules
Rental income is no longer subject to SDC at all. From 2026, rent is taxed only under income tax or corporate tax, depending on who owns the said rental property. This removes the previous “double layer” of tax on rental income and simplifies the position for landlords, property‑holding companies and real estate funds.
At the same time, rent for immovable property in Cyprus must be paid by electronic means (bank transfer, card or other recognised electronic method), with non‑electronic payments no longer acceptable for tax purposes. This may affect day‑to‑day practices in leasing and property management, so lease agreements and internal procedures may need updating.
- Disguised Dividends: Private Use of Company Assets under Closer Scrutiny
The reform introduces a specific “disguised dividend” regime for individual shareholders. This applies where:
- A shareholder (or a related individual) uses a company asset privately (for example, a villa, yacht or car) without paying a market‑level charge; or
- A company sells an asset to a shareholder (or related individual) at a price below its fair market value.
In these cases, the benefit is treated as a deemed dividend and is subject to SDC at 10%, which is double the normal 5% SDC rate on dividends for Cyprus‑resident domiciled individuals. The deemed dividend is calculated by reference to the market value of the asset and the extent of personal use or undervaluation.
This makes it more important to:
- Have clear, written policies on the private use of company assets by shareholders and their families.
- Keep proper records and market‑based valuations when assets move from a company to related individuals.
Non‑dom individuals remain outside the SDC net on dividends, including disguised dividends, but the underlying rules on valuation and characterisation still matter for audit and substance purposes.
- Financing and the 9% “deemed benefit” on shareholder loans
The long‑standing 9% “deemed benefit” on receivables from shareholders and directors has been extended to indirect shareholders. This means that more shareholder and intra‑group loans can give rise to deemed interest income for a Company, if they are not on arm’s‑length terms.
For HNW individuals, family offices and investment vehicles using Cyprus companies as financing or holding entities, this reinforces the need to:
- Review shareholder loan arrangements (including loans via intermediate entities).
- Ensure commercial interest rates and proper documentation are in place.
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This article is provided for general information purposes only and does not constitute legal, tax, or other professional advice. It should not be relied upon as a substitute for specific advice on any individual matter or transaction. Professional advice should be obtained before acting or refraining from acting on the basis of any information contained herein.