CYPRUS Trends and Developments Contributed by: Ioanna Solomou, Stephanos Ayiomamitis and Andria Kouloumi, Michael Kyprianou & Co LLC
That said, the reform does reinforce certain strategic directions. Cyprus continues to position itself as an emerging hub for start-ups, fintech companies and intellectual property-driven businesses. The enhanced research and development incentives and the intro - duction of a favourable employee share scheme regime are clear steps in this direction. At the same time, the increase in the corporate tax rate reflects broader international trends and the need for alignment with evolving global tax standards. While this may reduce one aspect of Cyprus’s historical competitive advantage, it is unlikely to significantly diminish its overall attractiveness, given the broader legal, regulatory and business environment. The 2026 tax reform represents an important mile - stone in the evolution of Cyprus’s tax system. While it may not constitute a radical overhaul, it introduces a range of meaningful changes that affect both individu - als and businesses. For international investors, the key takeaway is that Cyprus remains a stable and competitive jurisdiction, with ongoing efforts to modernise its tax framework and align with global developments. The introduc - tion of targeted incentives, particularly in the areas of research and development and employee participa - tion, signals a continued commitment to supporting innovation and entrepreneurship. Ultimately, the true impact of the reform will become clearer over time, as businesses adapt to the new rules and the market responds to the updated landscape. Foreign Direct Investment Screening in Cyprus Overview Cyprus has introduced a comprehensive legal frame - work governing the screening of foreign direct invest - ment (FDI) through the enactment of the Establish - ment of a Framework for the Screening of Foreign Direct Investments Law of 2025 (Law 194 (I)/2025) (the “Law”). Published in November 2025 and effective as of 2 April 2026, the Law represents a significant regu - latory development, establishing for the first time a structured mechanism for assessing inbound foreign investments on grounds of security and public order.
The adoption of this framework reflects a broader international and European trend towards enhanced scrutiny of foreign investments, particularly in sec - tors considered critical or strategic. As geopolitical, technological and economic risks continue to evolve, states are increasingly seeking to ensure that foreign participation in sensitive industries does not compro - mise national interests. For Cyprus, a jurisdiction traditionally characterised by openness to foreign capital and cross-border business activity, the introduction of an FDI screen - ing regime signals a shift towards a more balanced approach. While maintaining its attractiveness as an investment hub, Cyprus is now equipped with tools to evaluate and, where necessary, mitigate risks associ - ated with foreign ownership or control. This legislative development is particularly relevant given the country’s role in sectors such as shipping, energy, financial services and international corporate structuring. The new framework seeks to ensure that investments in these areas are aligned with broader considerations of national resilience and public order. Key features of the regime The Law establishes a formal and structured mecha - nism for the review of FDI that may affect security or public order. It applies to investments by foreign inves - tors that create or maintain lasting and direct links with undertakings operating in Cyprus, particularly where such investments confer the ability to exercise control or significant influence. A central element of the regime is the delineation of circumstances under which a transaction becomes subject to mandatory notification and review. In this respect, Article 3 of the Law sets out cumulative cri - teria that trigger the obligation to notify the competent authority. These include, among others, the acquisi - tion of a “special participation”, typically correspond - ing to a threshold of at least 25% of share capital or voting rights, or the ability to exercise decisive influ - ence over the target undertaking. In addition, the Law introduces a financial threshold, whereby the value of the investment, either individu- ally or when aggregated with related transactions
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