Cyprus 8% tax on employee share options (art. 20D): the conditions in plain English

Cyprus introduced a reduced tax rate for share option benefits from 1 January 2026. Article 20D of the Income Tax Law, inserted by N.244(I)/2025 (Official Gazette 5070 of 31 December 2025), taxes the benefit of an employee or director from the grant of options, or of rights to acquire shares, at 8 per cent, if the conditions below are met. A company that wants the rate for its team needs to know the conditions before it writes the option agreements.

The rate and the approval

The 8 per cent rate applies to the benefit of an employee or a director, who is resident in the Republic, under an incentive plan of the employer approved by the Tax Commissioner (the Έφορος Φορολογίας). The approval is given separately for each employee or director. A boolean flag that the company has "an approved plan" is therefore not what the law asks for: the approval belongs to a person. A benefit taxed at 8 per cent is not added to the individual's other income.

The conditions

The law sets these conditions for the plan:

1. Vesting. A minimum vesting period of three years, which cannot begin before the date the Commissioner approves the plan for that employee or director.
2. No transfer. The rights cannot be transferred before the minimum vesting period ends.
3. Shares. The shares are those of the employer, or of a company that is its direct or indirect parent, carrying the same rights and obligations as ordinary shares except the right to vote.
4. Price. The minimum exercise or acquisition price is not lower than fifty per cent of the value of the shares on the date the Commissioner approves the plan for that individual.

The regime does not apply to an employee or director who is a person connected with the company within the meaning of article 33 of the Income Tax Law.

Two caps

The 8 per cent rate applies to a benefit up to twice the individual's income from that employer in the year in which the vesting period ends. The aggregate benefit taxed at 8 per cent may not exceed one million euro over a rolling ten years. The excess is taxed under the general rules.

The 50 per cent test is not the nominal value rule

These are two different rules from two different laws, and a plan has to satisfy both.

Companies Law does not set a minimum option price or a statutory option regime. What it prohibits is issuing shares below nominal value, so a strike below nominal is in practice not permissible. An option plan with shares of nominal value EUR 1.00 and a share value of EUR 1.20 at the approval date needs a strike of at least EUR 1.00 for company law and at least EUR 0.60 for the tax test: here the nominal value is the higher of the two, and it decides. With a nominal value of EUR 0.01 and a share value of EUR 4.00, the tax test decides instead, at EUR 2.00.

Plans that were already running

An employer could submit, within six months of 1 January 2026, a plan whose vesting period began before the law came into force and whose minimum three years had not elapsed by the end of that term. That window closed on 30 June 2026. The Tax Department's own announcement of the closing date was not read for this guide.

When the benefit is taxed

Article 20D does not say at what moment the taxable benefit arises. Its only reference to time is the year in which vesting ends, and that serves the annual cap. Advisers differ on whether the benefit arises at vesting or at exercise, and the question is open.

What Ekvi records

Ekvi keeps the plan, the grants, vesting and exercise as dated events. For the tax regime the options page holds a status for each plan and holder pair, the approval date, the value per share at approval and the reference of the approval, and it shows the holder's recorded tax residence rather than assuming Cyprus. The check that a strike is not below nominal value is a refusal at the grant. Ekvi does not compute the 50 per cent test, the two caps or the tax itself.

Ekvi is a record-keeping tool and does not provide legal or tax advice.