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May 2026 · Tax & Regulatory Update

The overhaul of Cyprus's tax framework has brought significant changes to the treatment of interest income — one of the most commercially important categories of passive income for both individuals and companies. Understanding the new rules is essential for investors, holding structures, and internationally mobile individuals who earn interest through deposits, loans, bonds, or group financing arrangements.

Individuals — The Special Defence Contribution and Who It Affects
Under the Cyprus tax system, interest income received by individuals who are Cyprus tax residents has historically been subject to the Special Defence Contribution (SDC) rather than personal income tax (PIT). The SDC charge applies only to individuals who are both Cyprus tax resident and Cyprus domiciled. Under the Special Contribution for the Defence (SDC) Law, two rates apply depending on the nature of the interest:

Standard Rate — 17%
The general SDC rate applied to interest income received by or credited to a domiciled individual resident in Cyprus is 17%, levied on the gross amount received. This covers most forms of interest income including bank deposits, private loans, and intra-group lending arrangements.

Reduced Rate — 3%
A significantly lower SDC rate of 3% applies to interest earned from specific financial instruments, namely:

• Savings certificates or development bonds issued by the Cyprus Government or the government of any other EU Member State.
• Corporate bonds listed on a recognised stock exchange.
• Bonds or securities listed on a recognised stock exchange that are issued by a local authority or state organisation of Cyprus or another EU Member State.

Crucially, for the growing community of Non-Domiciled (Non-Dom) Cyprus tax residents, the SDC does not apply at all — neither the 17% nor the 3% rate. A Non-Dom individual can receive interest income — whether from bank deposits, intra-group loans, bonds, or other instruments, sourced from Cyprus or abroad — entirely free of SDC and, since interest income is not subject to PIT either, effectively free of any personal income tax in Cyprus. This represents a powerful advantage for high-net-worth individuals and internationally mobile investors who have structured their affairs through Cyprus.

The New Reform — Bringing Interest into the Personal Income Tax Net
A key element of Cyprus's ongoing tax reform is the proposed inclusion of certain categories of passive income — including interest — within the scope of personal income tax for individuals. Under the reform trajectory aligned with EU and OECD standards, interest income received by individuals may in future be subject to PIT at the progressive rates up to 35%, rather than SDC. However, the reform preserves key protections for Non-Dom individuals, and those who qualify for existing exemptions and incentive regimes are expected to remain unaffected or benefit from transitional arrangements. Individuals currently relying on Non-Dom status or other exemptions should review their position carefully as implementing legislation progresses, and ensure their structures remain robust under the reformed rules. Canney Services is monitoring developments closely and advising clients on a case-by-case basis.

Corporates — The 15% Headline Rate and Why the Effective Rate Is Lower
For Cyprus-incorporated companies, interest income forms part of ordinary taxable income and is subject to corporation tax. Cyprus has aligned with the OECD Pillar Two global minimum tax framework, moving its headline corporate rate to 15% for qualifying entities. However, the headline rate tells only part of the story. The effective tax rate on interest income for a Cyprus company can be significantly lower — often well below 15% — due to two principal mechanisms: allowable expense deductions and the Notional Interest Deduction (NID).

Deductible Expenses
In computing taxable interest income, a Cyprus company may deduct all expenses incurred wholly and exclusively in the production of that income. This includes interest paid on borrowings used to on-lend, funding costs, management charges, administration expenses, and any other directly attributable costs. Where a company acts as a financing vehicle — borrowing at one rate and on-lending at a margin — only the net spread (the margin) represents the taxable profit, not the gross interest received. This significantly narrows the taxable base in group financing structures.

The Notional Interest Deduction (NID)
The NID is one of Cyprus's most distinctive and advantageous corporate tax provisions. It allows a Cyprus company to claim a deduction — as if it were an interest expense — calculated on new equity introduced into the company after 1 January 2015. The NID rate is determined annually by reference to the 10-year government bond yield of the country where the equity-financed assets are deployed, plus a 3% risk premium (subject to a floor equal to the Cyprus 10-year bond yield plus 3%). For a company that has been capitalised with equity and deploys that equity in interest-earning assets, the NID effectively reduces the taxable profit attributable to that interest income. In many financing structures, the combination of expense deductions and NID can reduce the effective corporate tax rate on interest income to a fraction of the 15% headline — in some cases to low single digits — while remaining fully compliant with Cyprus and international tax rules. The NID cannot, however, create a tax loss; it is capped at 80% of taxable income in any given year.

The interplay of the SDC exemption for Non-Dom individuals, the NID for companies, and allowable expense deductions makes Cyprus one of the most tax-efficient jurisdictions in the EU for structuring interest income — whether through individual investment or corporate financing arrangements. Canney Services advises clients on structuring interest-bearing activities in a manner that is efficient, compliant, and resilient to reform. Contact us for a confidential discussion of your specific position.

May 2026 · Personal Tax & Relocation Advisory

Cyprus has firmly established itself as one of Europe's premier relocation destinations for high-net-worth individuals, entrepreneurs, and retirees. With a favourable climate, a strategic EU location, English as a widely spoken language, and a tax framework designed to attract and retain international talent, the island offers a compelling package for those seeking to restructure their personal tax affairs.

Obtaining Cyprus Tax Residency
There are two routes to becoming a Cyprus tax resident. The standard rule requires physical presence in Cyprus for more than 183 days in a calendar year. Alternatively, the "60-Day Rule" — introduced to attract globally mobile individuals — allows tax residency with as few as 60 days in Cyprus, provided the individual: does not reside in any other single country for more than 183 days; is not a tax resident elsewhere; maintains a permanent home in Cyprus (owned or rented); and carries on a business, employment, or holds a directorship of a Cyprus-registered company.

Key Tax Advantages for Relocating Individuals
Cyprus tax residents benefit from a highly competitive personal tax environment. There is no inheritance tax, no wealth tax, and no tax on capital gains — except on the disposal of immovable property located in Cyprus. Dividend income and interest income received by Non-Domiciled individuals are fully exempt from the Special Defence Contribution (SDC). The corporate tax rate stands at 12.5%, one of the lowest in the EU, with various IP and holding company reliefs available. New tax residents who were non-residents for at least 10 of the 15 years preceding commencement of employment in Cyprus may benefit from a 50% income tax exemption on employment income exceeding €55,000 per annum for a period of 17 years.

The Non-Domicile Regime — A Game Changer for HNWIs
Perhaps the most powerful tool in Cyprus's personal tax arsenal is the Non-Domicile (Non-Dom) regime. An individual who is a Cyprus tax resident but is not domiciled in Cyprus — generally meaning they were not born in Cyprus, did not have a Cypriot father, and have not resided in Cyprus for 17 of the last 20 years — qualifies as a Non-Dom. Non-Dom status provides a complete exemption from the SDC on all dividend income and passive interest income, regardless of amount or source. In practical terms, a Non-Dom individual can receive substantial dividend and interest income — from Cyprus or foreign companies — entirely free of tax in Cyprus. This makes Cyprus an exceptionally attractive jurisdiction for shareholders, investors, and entrepreneurs who have structured their wealth through holding companies or investment portfolios. Non-Dom status applies for a maximum period of 17 years from the date an individual first becomes a Cyprus tax resident.

Canney Services provides comprehensive relocation advisory for individuals and families considering a move to Cyprus. From the initial structuring and residency application through to full compliance and ongoing advisory, our team is here to make your transition seamless and tax-efficient. Contact us for a confidential consultation.

May 2026 · Tax & Regulatory Update

Cyprus has embarked on a significant overhaul of its tax framework, targeting both corporate and personal income tax regimes. The reforms, developed in alignment with OECD recommendations and EU directives, aim to modernise the system, broaden the tax base, and address international pressure to eliminate perceived preferential regimes.

Key areas of change include the implementation of the Global Minimum Tax (Pillar Two) for multinational groups with revenues exceeding €750 million, tightening of the Intellectual Property (IP) Box provisions, and revisions to the Non-Domiciled (Non-Dom) regime for individuals. The reforms also introduce updated transfer pricing rules requiring formal documentation for related-party transactions.

For businesses, the transition requires a thorough review of existing structures, intra-group arrangements, and tax residency positions. Canney Services is well-placed to advise clients on the impact of these changes and the steps needed to ensure continued compliance and efficiency. Please contact us for a tailored assessment.