The Cypriot tax landscape has undergone a significant recalibration following the entry into force of a broad package of fiscal reforms, effective as from the 1st of January, 2026. Although a considerable part of the legislative focus has centered around corporate-related matters, the amendments introduced in the area of personal taxation are also noteworthy, particularly for internationally mobile individuals, foreign executives and high-net-worth investors considering Cyprus as a jurisdiction for relocation, employment and long-term wealth structuring.
The revised framework reflects a clear policy objective of enhancing Cyprus’ competitiveness as an attractive destination for international talent and private capital through the modernisation of existing reliefs, the expansion of targeted exemptions and the reduction of the effective personal tax burden applicable to newly arriving taxpayers.
Against this backdrop, this article outlines certain key personal tax measures introduced by the 2026 reform, with particular emphasis on the updated tax residency test under the 60-day test, the revised personal income tax bands, the extension of the non-domicile rules and the employment income tax exemptions available to foreign individuals taking up employment in Cyprus.
As a general rule, it is worth noting that individuals qualifying as Cyprus tax residents are subject to tax in Cyprus on their worldwide income, irrespective of whether such income is remitted to Cyprus, subject always to any available double tax relief in respect of taxes paid abroad.
Tests for obtaining tax residency
Cyprus tax residency is determined pursuant to the Income Tax Law of 2002 (118(I)/2002) (the “Income Tax Law”), which sets out the statutory criteria under which individuals may be treated as tax residents of Cyprus for a given tax year, either by satisfying the “183-day test” or, alternatively, the “60-day test”.
“183-Day” Test
Where an individual is physically present in Cyprus for one or more periods exceeding, in aggregate, 183 days within the same tax year (being the relevant calendar year), such individual is automatically deemed to be a Cyprus tax resident. In such case, the individual’s worldwide income becomes subject to taxation in Cyprus regardless of whether an application for the issuance of a tax residency certificate is submitted.
“60-Day” Test
Pursuant to the “60-day test”, which is applicable as from the 1st of January, 2017, an individual may likewise be considered a Cyprus tax resident in a given year, provided that such individual has not stayed in any other country for a period exceeding 183 days in aggregate during the tax year in question and, further, that all three conditions below are satisfied:
- The individual maintains a permanent residence in Cyprus (whether by owning a permanent residence or leasing out a permanent residence); and
- The individual undertakes a business in Cyprus (i.e. self-employed) or is employed by (or maintains an office with) a Cyprus company for all the relevant period concerned; and
- The individual is physically present in Cyprus for a minimum of 60 days during the tax year concerned.
For the purposes of both the 183-day and the 60-day tests, the days spent in and outside Cyprus are calculated in accordance with the following statutory rules:
- the day of departure from Cyprus is treated as a day outside of Cyprus;
- the day of arrival in Cyprus is treated as a day within Cyprus;
- the arrival in Cyprus and the departure from Cyprus on the same day are treated as one day within Cyprus; and
- the departure from Cyprus and the return to Cyprus on the same day are treated as one day outside Cyprus.
Personal income tax rates
The 2026 tax reform has revised the income thresholds applicable under the progressive personal income tax scale in Cyprus.
The updated applicable income bands and corresponding tax rates are set out below:
In addition to the above progressive rates, certain categories of income are exempt from income tax pursuant to the provisions of the Income Tax Law. The most commonly encountered exemptions include the following:
- all dividend income;
- gains arising from the disposal of securities;
- the whole amount of remuneration derived from rendering salaried services outside Cyprus to a non-resident employer, or to a permanent establishment outside Cyprus of a resident employer, for a total period in the year of assessment exceeding 90 days;
- foreign exchange (FX) gains, with the exception of FX gains arising from trading in foreign currencies and related derivatives; and
- lump-sum repayment from life insurance schemes or from approved provident or pension funds.
The Cyprus non-domicile regime
A particularly significant feature of the Cyprus personal tax framework remains the non-domicile regime, introduced with effect from the 16th of July, 2015.
Individuals who are both Cyprus tax residents and Cyprus-domiciled, are subject to special defence contribution (SDC) on certain categories of income, most notably dividend income at the rate of 5% and passive interest income at the rate of 17%, subject to certain reduced rates of 3% applicable in respect of interest from national and/or European Union government/development bonds, listed corporate bonds, or similar qualifying securities.
By contrast, individuals who qualify as Cyprus tax residents but are not considered domiciled in Cyprus for SDC purposes are exempt from SDC on both dividend and passive interest income. This remains the case until such individuals complete 17 years of tax residency in Cyprus, provided that they become Cyprus tax residents for the first time.
Importantly, the reform measures further strengthened the attractiveness of the regime by introducing an alternative method of SDC taxation for individuals who, despite not having a domicile of origin in Cyprus, are subsequently deemed to have acquired a Cyprus domicile after completion of the 17-year non-dom period. Such individuals may elect, subject to approval by the Tax Commissioner, to continue benefiting from a fixed and simplified SDC treatment through the payment of a lump-sum contribution of €250,000 covering a consecutive five-year period. The election is irrevocable, applies on a binding basis for the relevant five tax years, and may be exercised for up to two such periods.
Employment income tax exemptions for individuals taking up employment in Cyprus
A central component of the 2026 tax reform is the retention and refinement of the employment income tax exemptions available to individuals taking up employment in Cyprus. These exemptions continue to represent an attractive feature of the Cypriot personal tax regime, as they are capable of reducing the effective income tax burden of foreign employees, returning expatriates and internationally recruited executives.
The legislative framework provides for a tiered system of relief, depending on the level of remuneration, the prior residence status of the individual and the nature of the individual’s employment history immediately preceding relocation to Cyprus.
50% exemption (high-income first employment relief)
The most substantial relief is the 50% exemption on employment income derived from first employment exercised in Cyprus. The exemption applies where the individual’s annual remuneration exceeds €55,000 and the individual was not resident in Cyprus for at least 15 consecutive years immediately prior to the commencement of such first employment in Cyprus.
The exemption is granted from the tax year in which the first employment commences and remains available for a period of 17 tax years. Importantly, the relief may only be claimed once during the individual’s lifetime, thereby making it a particularly valuable long-term incentive for highly remunerated foreign executives and specialised international personnel relocating to Cyprus.
20% exemption (lower-tier first employment relief)
An exemption of 20% of employment income, capped at €8,550 per annum, is also available in cases where an individual takes up first employment in Cyprus following a qualifying period of employment abroad with a non-Cyprus resident employer.
This relief is granted for 7 tax years, commencing from the tax year following the year in which employment in Cyprus begins, and is principally designed to facilitate the relocation of mid-level foreign employees who may not meet the remuneration threshold required for the 50% exemption.
25% exemption (brain gain incentive)
In addition, a separate 25% exemption exists on employment income (or business profits, where applicable), subject to a maximum annual exemption of €25,000, aimed at encouraging the relocation or return of economically active individuals to Cyprus as part of “brain gain” efforts.
The relief applies to individuals commencing employment or business activity in Cyprus between 2025 and 2030, provided that annual employment income or business profits exceed €30,000 and that the individual satisfies the prescribed prior non-residence and overseas employment experience criteria. Where applicable, the exemption is granted from the year of arrival and may continue for up to 7 tax years. As with the 50% regime, the exemption is available once only during the lifetime of the taxpayer.
Legacy exemptions (transitional arrangements)
In parallel, the legislation preserves certain earlier exemption regimes on a grandfathered basis for individuals whose Cyprus employment commenced under the previous statutory framework. These include, most notably, the earlier 20% exemption as well as the former 50% high-earner exemption linked to the historical €100,000 remuneration threshold.
Although no longer available to new entrants, these legacy exemptions continue to apply to qualifying individuals subject to the commencement dates and eligibility requirements in force at the time their Cyprus employment began.
Taken together, the above provisions create a broad and flexible package of inbound employment incentives, allowing Cyprus-based employers to structure internationally competitive remuneration arrangements while simultaneously enhancing Cyprus’ attractiveness as a destination for foreign talent and executive mobility.
Other noteworthy incentives
Further targeted incentives have also been introduced under the recent Cyprus tax reform framework, particularly in relation to equity-based remuneration and the broader taxation of employment-related benefits.
Share options and share awards
A notable development is the introduction of a new preferential tax treatment applicable to employee share option plans and share awards granted under approved employer incentive schemes. Subject to satisfaction of the prescribed statutory conditions, the benefit arising from qualifying share options or share awards may be taxed at a preferential rate of 8%, thereby potentially creating a more efficient framework for long-term employee incentivisation.
The regime is available only where the relevant incentive scheme has been formally approved and incorporates, inter alia, a minimum vesting period of 3 years, restrictions on transferability during the vesting period, and qualifying share participation conditions linked to shares in the employer or its direct or indirect parent company carrying rights broadly equivalent to ordinary shares (save, where applicable, for voting rights). In addition, the relevant options or share awards must carry a minimum exercise or acquisition price which is not lower than 50% of the market value of the underlying shares at the time of approval of the incentive scheme.
The preferential 8% tax rate applies up to a benefit equal to twice the employee’s annual remuneration from the same employer in the vesting year (excluding the benefit itself), subject to an overall cap of €1,000,000 per individual over a rolling ten-year period.
Definition of taxable employment income
In addition, the definition of taxable employment income has been broadened so as to expressly capture a wider range of employment-related benefits. This now includes pre-employment incentives aimed at inducing acceptance of employment or appointment (including “golden handshake” payments or pre-start benefits), as well as certain termination and retirement-related payments such as early retirement incentives and compensation linked to termination of employment or office, thereby providing greater legislative clarity in the tax treatment of increasingly sophisticated remuneration packages.
Family and sustainability
New targeted reliefs have also been introduced to support households and promote sustainable expenditure. These include enhanced child-related deductions (ranging from €1,000 for the first child up to €1,500 for the third and subsequent children, subject to income thresholds), housing reliefs of up to €2,000 for mortgage interest or rent, as well as green incentives of up to €1,000 for qualifying investments such as electric vehicles, solar panels and battery systems.
Taken as a whole, the post-2026 Cyprus personal tax framework reflects a broader legislative effort to align individual taxation with modern patterns of international mobility, executive remuneration and household economic support. When considered alongside the tax residency rules, the continued availability of the non-domicile regime and the expanded inbound employment exemptions, the reforms collectively reinforce Cyprus’ position as a fiscally competitive jurisdiction for foreign investors, internationally mobile employees and multinational groups seeking to establish substantive operational presence within the European Union.
Specialist tax advice is essential in order to assess the availability of the above incentives and to ensure that both individual relocation structures and corporate employment arrangements are implemented in a tax-efficient and fully compliant manner. Our team remains happy to provide assistance and guidance in navigating through all tax matters both at an individual and company level.