Cyprus tightens tax rules for companies

Cyprus intends to further strengthen the minimum taxation rules for large international and domestic groups. The Ministry of Finance has submitted for public consultation amendments related to the application of the international Pillar Two system, which establishes a minimum effective tax rate of 15% for the largest groups.

The key point is not to confuse two different tax measures. From 1 January 2026, the standard corporate tax rate in Cyprus did indeed increase from 12.5% to 15%. But this is a separate measure under the domestic tax reform. Pillar Two is an international mechanism that applies only to groups with consolidated annual revenue of €750 million or more.

Which taxes apply

Corporate tax — 15%.

From 2026, companies that are tax residents of Cyprus will pay standard corporate tax at a rate of 15% instead of the previous 12.5%. This change applies to companies regardless of whether they are giant multinational corporations or small local businesses.

For example, with taxable profits of €100,000, a company must calculate €15,000 in corporate tax at a rate of 15%.

But the calculation is more complex for the largest groups.

The Pillar Two minimum effective rate — 15%.

The Pillar Two rules apply to international and large domestic groups if their consolidated revenue is at least €750 million. At the same time, 15% is not simply another tax that is mechanically added to corporate tax. Companies calculate their effective tax rate under special GloBE rules. If it turns out to be below 15%, an additional tax arises — the top-up tax, which brings the effective rate up to the minimum level.

This mechanism is specifically intended to ensure that a large group cannot substantially reduce the actual taxation of its profits by using low-tax regimes.

Why this matters specifically for Cyprus

Cyprus was known for a comparatively low corporate tax rate of 12.5% for many years. From 2026, it is already 15%, which effectively matches the international Pillar Two minimum level.

However, matching rates does not mean that the Pillar Two issues automatically disappear.

The minimum tax is calculated under a special GloBE methodology, rather than simply on the basis of the Cypriot corporate tax rate. Therefore, under certain circumstances, some large groups may face an additional tax liability even with a nominal CIT rate of 15%.

That is why Cyprus continues to refine its national Pillar Two rules.

Who will actually be subject to the new requirements

First and foremost, this concerns:

- international groups with consolidated revenue of €750 million or more;

- large domestic groups meeting this threshold;

- certain joint ventures and related structures covered by the Pillar Two rules.

At the same time, the legislation provides for exceptions and special regimes for certain categories of organisations. Therefore, the mere fact of having a large turnover does not mean that all profits will automatically be subject to additional tax.

The key indicator is whether the particular group meets the GloBE/Pillar Two criteria.

What will change for small and medium-sized businesses

For an ordinary Cypriot business, the most important change has already taken place: since the beginning of 2026, corporate tax has been 15% instead of 12.5%.

The new Pillar Two mechanism does not mean that a small restaurant, shop, beauty salon or local company will suddenly have to pay an additional 15% on top. The €750 million threshold refers to the consolidated revenue of the group, so most small and medium-sized enterprises are not subject to the global minimum tax.

At the same time, the tax burden on businesses as a whole has indeed increased compared with last year precisely because of the rise in the standard CIT rate.

And what will ordinary residents feel

No direct new tax on salaries is being introduced for ordinary citizens as a result of Pillar Two.

The system concerns corporate taxation of large groups, not personal income tax.

Moreover, as part of the 2026 tax reform, Cyprus simultaneously increased the personal tax-free threshold from €19,500 to €22,000. In other words, the changes to the tax system for citizens cannot be reduced solely to an increase in corporate tax.

However, indirect consequences are possible.

Large companies facing a higher effective tax burden may review their investment plans, cost structures, profit levels, prices for goods and services, or hiring plans. But this would be an economic effect, rather than a requirement under the new law.

On the other hand, additional tax revenues remain a potential source of budget income and may be used by the state to finance public services and infrastructure.

Could Cyprus lose investment?

This is one of the main questions for the island's economy.

Higher tax burdens could potentially reduce Cyprus's advantage over jurisdictions with lower rates. This is particularly important for international groups choosing where to locate companies, intellectual property and individual business functions.

But it would be wrong to assess Cyprus's attractiveness solely by its corporate tax rate. International businesses also value the country's EU membership, tax treaties, professional infrastructure, legal system and access to qualified specialists.

In addition, Pillar Two itself is an international system. Therefore, large groups face similar rules not only in Cyprus. The OECD states that the global minimum level is 15%, while the application threshold is €750 million in consolidated revenue.

The key distinction in two figures

To understand the situation, it is enough to remember two figures:

15% — the standard corporate tax rate in Cyprus from 1 January 2026.

€750 million — the consolidated group revenue threshold for the application of Pillar Two.

If a group exceeds this threshold, its effective tax rate under the GloBE rules must be no lower than 15%. If it falls below that level, an additional top-up tax may arise.

Thus, the current changes do not mean a new 15% tax for all residents of Cyprus, nor do they mean an additional 15% tax for every company.

For an ordinary citizen, the direct effect of Pillar Two is practically non-existent. For small and medium-sized businesses, the key change has already been the increase in corporate tax to 15%. For the largest international and domestic groups, however, the tax system is becoming significantly stricter and more transparent.

In essence, Cyprus is finally adapting its tax model to the new international reality: the era in which a large multinational group could choose a jurisdiction primarily for the sake of a very low effective tax rate is gradually coming to an end.