Cyprus Tax Reform 2026 — Will 15 % CIT & 5 % Dividend Tax Make a Ltd the Default Choice?
1 What’s changing
For years, Cyprus-resident owners of Ltds took a double hit: they already paid the 12.5 % corporate tax and a steep 17 % Special Defence Contribution (SDC) on every euro of dividends, while non-dom founders (and multinationals routing profits abroad) escaped the SDC entirely. The 2026 package kills two birds at once:
- OECD Pillar Two compliance. Bumping the corporate rate to 15 % keeps Cyprus off the low tax blacklist
- Fairness to local shareholders
The bulk of changes are summarized below:
| Item | 2025 law | Draft bill (earliest 1 Jan 2026) |
|---|---|---|
| Corporate tax (CIT) | 12.5 % | 15 % |
| Dividend SDC | 17 % | 5 % |
| Dividend GHS | 2.65 % | unchanged |
| Personal-income tax, Social-Insurance, GHS, VAT | unchanged | slight changes |
Personal income tax is getting also very small modifications like taking the 0% band from 19.5k to 20.5k and similar adjustments to higher bands. The outcome is not that significant so I ll omit this change for simplicity.
2 Who wins now vs. after reform?
Read also the initial comparison of self employed vs ltd
| Gross € | Solo net | Ltd 12.5 % / 17 % net | Ltd 15 % / 5 % net | Biggest winner |
|---|---|---|---|---|
| 30 000 | 21 620 | 21 393 | 21 874 | Still close |
| 60 000 | 36 755 | 42 485 | 45 423 | Ltd (reform) |
| 100 000 | 60 057 | 70 608 | 76 822 | Ltd (reform) |
| 150 000 | 90 557 | 105 761 | 116 071 | Ltd (reform) |
Assumptions identical to the first post:
- director salary €19 500, audit + book-keeping + levy = €2 350, same SI/GHS rates.
Key insight → the 5 % dividend tax more than offsets the extra 2.5 % CIT at virtually every profit level above ~€40 k.
3 Why the maths flips
- Dividends dominate a one-person company’s cash-out (salary fixed at the tax-free band).
- Cutting SDC from 17 % → 5 % shaves 12 percentage points off every euro you distribute.
- Raising CIT by 2.5 points only bites on the residual profit after salary and running costs.
In the €100 k scenario, you trade €3 748 more CIT for €10 001 less SDC → net +€6 253.
4 Scenario deep dives
At €60k
Before reform net €42 485 → After €45 423 (+ €2 938) – effective tax drops from 29.2 % → 24.3 %.
At €100k
Before €70 608 → After €76 822 (+ €6 214) – effective tax 29.4 % → 23.2 %.
At €150k
Before €105 761 → After €116 071 (+ €10 310) – effective tax 29.5 % → 22.6 %.
5 Transition playbook (2025 → 2026)
| Move | Who should care | Why |
|---|---|---|
| Defer large dividends until law passes | Existing Ltds with retained earnings | Save 12 % SDC immediately. Still no word if SDC change will change also for 2025 and prior dividents |
| Incorporate in 2025 but take minimal salary | High-margin freelancers > €80 k | Lock in liability protection; enjoy 5 % SDC later. |
| Stay solo for ≤ €40 k profit | Lower margin freelancers | Still cheaper, zero audit admin. |
| Re-run the numbers Q4 2025 | Everyone | Bill could still be tweaked in committee. |
6 FAQ
“Is the 5 % rate guaranteed?”
Not until the House votes; current wording keeps 17 % if the paying company sits in a low-tax jurisdiction.
“Do non-doms still pay 0 % SDC?”
Yes. Non-dom status trumps the new 5 % rate—you keep paying zero.
“Will my accountant software auto-update?”
Most Cypriot payroll apps publish January rate patches; ask your vendor in December.