Cyprus is refining its corporate tax system to align with international standards while maintaining its appeal to global investors. Among the upcoming adjustments, changes to dividend taxation and cross-border payment rules are drawing attention from shareholders, private wealth managers, and international business owners.
So, how will these updates affect your Cyprus-based investments and companies? And more importantly, what actions can you take now to stay ahead of the reform?
What Changes Are Being Proposed?
The most notable change is the phased removal of the Deemed Dividend Distribution (DDD) rules. These rules have long applied to Cyprus tax-resident companies with shareholders not receiving actual dividends. At the same time, a new 5% Special Defence Contribution (SDC) rate is being introduced, aiming to modernise how dividends are taxed for individuals considered both tax resident and domiciled in Cyprus.
Additionally, starting in 2026, a 17% withholding tax (WHT) will apply to dividends, interest, and royalties paid to related entities in jurisdictions considered low-taxed. This measure reflects Cyprus's broader effort to comply with international tax principles and prevent base erosion and profit shifting (BEPS).
Who Is Most Likely to Be Affected?
If you are a shareholder in a Cyprus company, a passive investor using Cyprus as a holding base, or an international group with outbound payment flows, these changes may directly affect how your income is distributed and taxed.
Why Acting Early Makes a Difference
Now is the time to assess your corporate setup and dividend strategy. Early planning offers the flexibility to:
- Adapt to the abolition of DDD
- Evaluate the tax implications of your residency or domicile status
- Plan dividend distributions before changes take full effect
- Review group structures to manage exposure to new WHT requirements
For investors and business owners who delay, the result could be a higher tax burden, compliance risk, or reduced efficiency in profit allocation.
How Michael Chambers & Co. LLC Can Help
Our legal and tax advisory team assists both individuals and corporate groups in preparing for the 2025–2026 Cyprus tax changes. Here's how:
- Dividend Strategy and Restructuring: We help evaluate your current dividend policies and shareholder structure to determine the most efficient approach under the new 5% SDC rate. For clients impacted by the end of the DDD regime, we provide detailed planning support and legal guidance on when and how to distribute profits.
- International Payment Planning: Our team conducts full diagnostics on your cross-border payment flows to determine whether any will fall under the new WHT provisions. We help you establish economic substance, apply the principal purpose test, and examine available double tax treaties.
- Corporate Group Structuring: If your group operates across multiple jurisdictions, we advise on how to restructure to remain compliant while still benefiting from Cyprus's favourable tax framework. This includes holding company review, profit repatriation planning, and compliance risk assessment.
- Tax Residency and Domicile Advisory: For individuals, we provide tailored guidance on establishing or maintaining Cyprus tax residency, evaluating domicile status, and managing legal obligations related to SDC, especially in connection to passive income.
Consider Your Next Steps
Tax law does not stand still, and neither should your strategy. A simple review today could protect value and ensure your company or holding setup continues to serve its purpose efficiently.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
