Cyprus Corporate Tax Losses 2026: Carry-Forward, the New Seven-Year Rule and Group Relief

The 2026 tax reform raised the headline corporate rate from 12.5% to 15%, and to soften the impact for loss-making and capital-intensive businesses it extended the tax-loss carry-forward period from five years to seven. For any Cyprus company that expects early-stage losses — a start-up, a scale-up, a property developer, an IP developer — the rules on how long losses survive, in what order they are used, and whether they can move between group companies now matter more than ever.Income Tax (Amending) Laws of 2025, in force 1 January 2026

This guide gives the direct answers: the new seven-year window, the set-off ordering rule, the transitional treatment of pre-2026 losses, and the 75% conditions for group relief. It sits alongside our Cyprus corporate tax guide and the summary of what the 2026 reform changed.

How long can a Cyprus company carry forward tax losses in 2026?

Seven years. The 2026 reform extended the trading-loss carry-forward period from five years to seven for losses arising from 1 January 2026. A loss in the 2026 tax year can be offset against taxable profits up to and including the 2033 tax year.Income Tax Law N.118(I)/2002, Art. 13 (as amended 2026)

The extension is one of the reform's deliberate counterweights to the higher 15% rate, which itself aligns Cyprus with the OECD/EU global minimum-tax framework for large multinational groups.Council Directive (EU) 2022/2523 on a global minimum level of taxation A longer window disproportionately helps businesses whose profits arrive several years after their costs: the extra two years can be the difference between fully absorbing early losses and watching them lapse unused. Losses are computed on the same basis as taxable income, so only losses from activities that would have produced taxable profit qualify.

In what order are tax losses set off?

A company applies its current-year loss against its own current-year income first; a claimant company must then exhaust its own carried-forward losses against its taxable income before it can absorb the current-year losses of another group member.Income Tax Law N.118(I)/2002, Art. 13

The reform clarified this ordering to stop a profitable company importing group losses while its own brought-forward losses sat idle. In practice the sequence for a claimant is: (1) offset current-year income with its own current-year deductions; (2) apply its own carried-forward losses, oldest first, so nothing expires needlessly; and only then (3) claim current-year group relief from a loss-making group company. Getting the sequence wrong can waste older losses that are closer to expiry — a real risk in the transitional years when five-year and seven-year losses coexist on the same balance sheet.

What happens to losses incurred before 2026?

Pre-2026 losses keep the old five-year carry-forward limit. The seven-year window applies only to losses arising from 1 January 2026, so a company cannot retroactively extend the life of older losses.Income Tax (Amending) Laws of 2025, transitional provisions

The practical takeaway is scheduling. Where a company holds both older and newer losses, older five-year losses should generally be used first because they expire sooner — consistent with the oldest-first principle above. Model the exact expiry year of each vintage before planning distributions or timing income, because a lapsed loss is a permanent cost.

What are the conditions for Cyprus group relief?

Current-year trading losses can be surrendered from one Cyprus company to another where they form a group under the 75% test: one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company, held directly or indirectly.Income Tax Law N.118(I)/2002, Art. 13(4)-(8)

The 75% relationship is not just about shares. To be a 75% subsidiary a company must have at least 75% of its ordinary voting share capital held by the parent and the parent must be entitled to at least 75% of the profits available for distribution and of the assets available on a winding up. Two further points define the mechanism:

• Only current-year losses. A surrendering company can give up all or part of the loss of the currentyear of assessment. Its own brought-forward losses cannot be surrendered — those stay locked to its future profits.
• Both must be Cyprus tax resident (subject to the EU exception below) and members of the same group for the whole year of assessment, not just at the year-end.

Because group relief is a formal claim reconciling two companies' computations, both entities in practice need audited financial statements — see our Cyprus audit requirements guide for why a group-relief claim usually forces a full statutory audit.

Must the surrender and the claim fall in the same tax year?

Yes. Group relief matches a surrendering company's current-year loss against a claimant company's profit of the same year of assessment, and both must be group members throughout that whole year.Income Tax Law N.118(I)/2002, Art. 13

There is no carry-back and no banking of surrendered losses for a future claim: a loss not surrendered in its own year stays with the loss-making company as a normal carried-forward loss (now for seven years). The whole-year membership condition is a common trap when a subsidiary is acquired or sold mid-year — relief is unavailable for the year in which the 75% relationship is created or broken. A company incorporated during the year is treated as meeting the requirement for that year if the group relationship existed from its incorporation to the year-end.

Can EU or interposed foreign companies qualify?

Yes, within limits. Interposing a non-Cyprus company does not break the group as long as that company is tax resident in another EU state or in a treaty/exchange-of-information partner country. A Cyprus company can also claim the losses of an EU-resident group company that has first exhausted relief in its home state.Income Tax Law N.118(I)/2002, Art. 13

This reflects EU law on cross-border loss relief. Two mechanisms coexist. First, the interposition rule: the chain of 75% ownership can run through foreign companies without losing Cyprus group relief, provided each interposed company is EU-resident or resident in a country with a double-tax treaty or exchange-of-information agreement with Cyprus. Second, the final-losses rule: a Cyprus claimant may absorb the losses of an EU-resident subsidiary only where that subsidiary (and any intermediate EU holding company) has genuinely exhausted every possibility of using the losses in its own state. These cross-border claims are document-intensive and should be planned with advisers — the interaction with a Cyprus holding structure is where most value, and most risk, sits.

Which losses cannot be carried forward or grouped?

Losses attributable to exempt income, most capital losses, and losses that fall outside the trading-income computation do not enter the seven-year carry-forward or group-relief pool.Income Tax Law N.118(I)/2002; Capital Gains Tax Law N.52/1980

• Exempt-income losses. If income from an activity would be tax-exempt (for example, qualifying dividends or profits from the disposal of securities), a loss from that activity is not deductible against taxable income.
• Capital losses.Losses on immovable property in Cyprus fall under the separate capital gains tax regime, not income tax, and cannot shelter trading profit — see the Cyprus capital gains tax guide.
• Foreign permanent-establishment losses. Losses of an exempt foreign PE are generally ring-fenced, and recapture rules can apply where the PE later becomes profitable.

How do losses and group relief fit corporate tax planning?

Treat loss carry-forwards as expiring assets. Map each loss's vintage and expiry year, use the oldest first, and use group relief to soak up current-year losses that would otherwise sit in a company with no near-term profits.

In a group, the seven-year window and current-year group relief work together: group relief moves this year's losses to where there is profit today, while the extended carry-forward protects losses that have nowhere to go yet. A common structure is a profitable Cyprus trading company paired with a loss-making development or IP company — the first absorbs the second's current-year losses, and any excess stays with the loss-maker for up to seven years. Because both companies must be 75%-linked for the entire year and reconcile audited numbers, the planning has to be set up before the year starts, not at filing time.