Corporate tax jumps to 15% in 2026: Is it still a tax haven?

When it comes to listing countries with attractive business incentives and a competitive corporate tax system, Cyprus easily tops the rank. They have been mandating a headline rate of 12.5% for international businesses, holding the title of the lowest in the European Union. But this dynamic is about to change starting in 2026. 

According to the global Pillar Two initiative, Cyprus has approved a revised and slightly increased corporate income tax to 15%, targeting large multinational enterprises (MNEs). While this may seem like a minor reform, this announcement has put the international business community in a dilemma, prompting a critical question: Is this initiative a sign of the end of Cyprus’s status as a premier tax-efficient jurisdiction?

Surprisingly, the answer is a direct no. While the shift is significant, it is a strategic adaptation to a new global tax reality. For the majority of businesses, Cyprus still offers a compelling suite of advantages that far outweigh the impact of a 2.5% rate increase. Hence, this evolution of the Cyprus tax rates is not a downgrade to its appeal, but a recalibration to ensure its long-term compliance on the world stage.

Why the change? Understanding the global minimum tax

Change is a fundamental factor in every realm of the world. In this context, this shift is not merely a domestic policy change but is fueled by a global agreement mobilized by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Pillar Two model framework aims to establish a baseline on tax competition by introducing a global minimum corporate tax rate of 15% for large MNEs with consolidated revenue exceeding €750 million.

Under these rules, if a Cyprus-based subsidiary pays an effective tax rate lower than 15%, its parent company’s home country is liable to impose a “top-up” tax to bring the total up to the 15% minimum. Cyprus raising its headline to 15% ensures that the top-up collected returns to its own treasury, rather than ceding the revenue to other countries. This approach helps maintain fiscal sovereignty.

Primarily, this change applies only to large multinational enterprises. While the backbone of international business operations in Cyprus, the small and medium-sized enterprises (SMEs), are expected to remain outside the scope of these rules, the final details for local implementation are still being clarified.

Beyond the headline rate – The pillars of the Cyprus tax system

If you judge Cyprus solely on its increased headline corporate tax rate, you will miss out on its other attractive benefits. The true value of Cyprus is defined by its combination of a holistic and sophisticated tax framework, which remains independent of the Pillar Two changes. Here’s why Cyprus will continue to be a top preference for international business:

An amplified network of double tax treaties

Cyprus has one of the most extensive networks of Double Taxation Agreements (DTAs) in the world, encompassing over 65 treaties. These agreements prevent the same income from being subject to double taxation by two different countries, establishing certainty and lowering the overall effective tax burden for cross-border trade and investment. This extensive network remains intact despite the revised headline rate.

Multiple Intellectual Property (IP) incentives

The Cyprus IP regime, or the “patent box,” is one of the most beneficial frameworks in Europe. Under this regime, an effective tax rate of as low as 2.5% applies on qualifying IP profits, including a deduction of up to 80% of the net profit earned from qualifying IP assets. For companies in tech, pharmaceutical, and R&D sectors, this incentive represents Cyprus as an unparalleled hub, overlooking the minor change in the standard corporate rate.

Zero tax on key transactions

International businesses have very few means to reject Cyprus as a global hub, as the jurisdiction also offers a long list of absolute and highly attractive exemptions:

• No tax on dividend income: A Cyprus tax resident company receiving dividends is generally fully exempt from corporation tax.
• No capital gains tax on disposal of securities: Shares, bonds, and other financial instruments are tax-free, making it beneficial for holding companies, investment firms, and private equity.
• No withholding taxes: No withholding taxes on dividends, interest, and royalties paid to non-resident companies or individuals.
• No succession taxes: Cyprus has a policy of no inheritance or gift tax.

Favorable conditions for individuals

Beyond the collective corporate impact, Cyprus also presents a favorable personal tax environment for its employees and founders. This includes:

• Non-Domiciled regime: Tax-resident individuals who are not domiciled in Cyprus are exempt from Special Defence Contribution (SDC) on dividends, interest, and rental income, presenting a significant incentive for high-net-worth individuals and business owners.
• 50% Tax exemption for high-earners: Newly employed or self-employed individuals with an annual income exceeding €55,000 benefit from a 50% income tax deduction for 17 years.
• Broad personal income tax bands: Cyprus has a progressive income tax system featuring generous bands, keeping personal taxation competitive.

So, is “tax haven” still the right label for Cyprus?

The term “tax haven” often carries negative connotations of secrecy and aggressive tax avoidance. However, Cyprus has effectively abolished this image by transforming into a fully compliant, transparent, and reputable EU business hub. It is a member of the EU, the Eurozone, and the Commonwealth, and fully adheres to all EU directives and international standards on tax transparency (like ATAD, DAC6, and CRS).

Therefore, instead of “haven,” it is better to describe Cyprus as a “high-efficiency, low-tax jurisdiction,” providing a legal, stable, and sophisticated ecosystem designed to uplift international business in a tax-efficient manner with full compliance to global norms. The 15% increase in corporate tax for large entities proves their commitment to playing by the international rulebook.

The verdict

While the increase in Cyprus’s corporate tax rate to 15% in 2026 may seem concerning at first glance, it actually presents an opportunity for growth and evolution for international business. Its favorable IP regimes and wide treaty network continue to offer value to SMEs and startups. As the jurisdiction is adapting to global tax changes, it remains a compelling destination for many.