CYPRUS Trends and Developments Contributed by: Christina Ioannidou, Zoe Christou and Niovie Constantinou, Ioannides Demetriou LLC
Outlook for 2026 A more structured regulatory environment In 2026, transaction execution is increasingly shaped by regulatory sequencing, structural tax adjustments and sector-specific consolidation trends. In this envi - ronment, careful planning, early regulatory assess - ment and disciplined valuation assumptions have become central to successful deal completion. Cyprus is implementing a foreign direct investment screening regime that will formalise how cross-bor - der capital is assessed, adding another approval layer alongside existing merger control and sector- specific requirements. Early-stage regulatory mapping has become essential, with successful deal makers identifying required approvals upfront and sequenc - ing filings strategically. The regulatory environment is designed to facilitate complex transactions with appropriate safeguards rather than block activity. Sectors positioned for growth Several sectors show strong M&A potential for 2026. • Renewable energy presents significant opportuni - ties as Cyprus advances its green transition and European decarbonisation targets drive investment in solar and alternative energy infrastructure. • Healthcare consolidation will continue as the Gen - eral Healthcare System develops and operators build integrated service platforms. • Technology remains attractive as international acquirers value Cyprus-based development teams serving EMEA markets. • Retail and FMCG face consolidation pressure as margin compression and distribution inefficiencies push smaller players towards strategic combina - tions. Cyprus as a transaction-ready jurisdiction The successful completion of 2025’s landmark deals, including the banking mega-mergers and major insur - ance integrations, demonstrated Cyprus’s capacity to accommodate complex, high-value transactions across multiple sectors simultaneously. The island combines EU regulatory standards with skilled pro - fessional advisers, international connectivity and business-friendly policies. Banking business transfer frameworks, merger control procedures and sector-
committee. Failure to notify or obtain prior approval for a notifiable FDI can result in administrative fines and may render the transaction unenforceable until cleared. The law also grants the authority discretion - ary powers to review deals that do not meet the man - datory notification thresholds if there are reasonable grounds to believe they could affect national security or public order. The regime’s adoption has already influenced deal planning, structuring and risk assessment in cross- border M&A, especially for acquisitions involving third-country investors in sectors now designated as strategically sensitive. Integration of FDI screen - ing into M&A due diligence and regulatory timelines will be a key consideration alongside competition and sector-specific approvals going forward. Tax and transactional cost reforms Cyprus has implemented a wide-ranging tax reform package effective from 1 January 2026, representing the most significant overhaul of the tax framework in over two decades and directly impacting M&A struc - turing, valuation and post-acquisition planning. Key changes include the following. • An increase in the corporate income tax rate from 12.5% to 15%, aligning Cyprus with OECD Pillar Two standards. • An extension of tax loss carry-forward from five to seven years, enhancing post-completion loss utilisation for acquiring groups. • A reduction of Special Defence Contribution on dividends from 17% to 5%, improving Cyprus’s attractiveness as an investment platform. • The abolition of the deemed dividend distribution regime for profits generated from 2026 onwards, simplifying post-deal profit retention and group cash management. • The abolition of stamp duty on transaction docu - ments as of 1 January 2026, reducing execution costs and simplifying documentation, particularly in complex or cross-border deals. Taken together, these measures modernise Cyprus’s tax framework in line with international standards while preserving its competitiveness as a platform for cross-border M&A and investment.
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