1. Transitional DDD Rules after the 2026 Reform

Although the Cyprus tax reform abolishes the deemed dividend distribution (DDD) regime from 1 January 2026, special transitional rules continue to apply to profits generated before that date.

The transitional provisions apply primarily to accounting profits relating to the years:

• 2024; and

Accordingly, Cyprus companies still need to examine historical profits and prior distributions even after the formal abolition of the DDD regime.

Application of the 70% Deemed Distribution Rule

Under the transitional framework, Cyprus companies are still required to deem as distributed 70% of adjusted accounting profits relating to the relevant years where no actual dividend distribution has taken place within the prescribed period.

The rules continue to apply to profits generated before 31 December 2025, despite the general abolition of the DDD regime from 2026 onwards.

As a result, historical accounting profits remain relevant for SDC purposes during the transitional period.

Shareholders Subject to SDC

The transitional deemed distribution rules continue to apply only to shareholders who are subject to Cyprus Special Defence Contribution (SDC).

Accordingly:

• Cyprus tax resident and domiciled individuals remain subject to SDC under the transitional framework; while
• Cyprus non-dom individuals generally continue to benefit from exemption from SDC.

The shareholder position therefore remains relevant when assessing the application of the transitional provisions.

Interaction with the New 5% Dividend Rate

The Cyprus tax reform also reduces the SDC rate on dividend income from 17% to 5% from 1 January 2026.

However, dividends distributed out of profits generated up to 31 December 2025 continue to fall within the transitional regime remain subject to SDC at the previous 17% rate until 31 December 2031.

Companies therefore need to distinguish between:

• profits generated before 2026; and
• profits generated from 2026 onwards,

when determining the applicable SDC treatment of future dividend distributions.

Liquidation and Historical Reserves

The transitional rules continue to affect companies that still hold profits generated before 2026.

This may become relevant:

• when historical reserves are distributed,
• when old retained earnings remain within the company, or
• when a Cyprus company is liquidated.

Companies with significant accumulated profits from previous years therefore need to continue reviewing earlier accounting periods during the transitional years.

Practical Impact of the Transitional Rules

Although the DDD regime is formally abolished from 2026, the transitional provisions preserve elements of the previous framework for earlier profit periods.

As a result, many Cyprus companies may continue to maintain records relating to:

• historical accounting profits,
• prior distributions,
• shareholder positions, and
• historic SDC calculations.

The transitional framework therefore limits the immediate simplification effect of the reform for companies with accumulated profits from earlier years.

Contact Rightax

For further information or professional assistance regarding the Cyprus tax reform, international tax matters or Cyprus corporate structures, please contact the Rightax tax advisory team.

+357 99 108 510

[email protected]

The above information is provided for general guidance only. It does not constitute legal or tax advice. Always consult a qualified professional for advice tailored to your specific circumstances