A single settlement window for undistributed company profits at 7.5 percent
Decree Law 45/2026, in force in North Cyprus since 15 April 2026, offers companies a single settlement opportunity: profits accumulated in the prior year profits account and never distributed to shareholders can be paid out with a final withholding of 7.5 percent. Applications close on 31 July 2026.
What the scheme covers
The decree clears the way for profits that have sat on the balance sheet for years to be transferred to shareholders. Three conditions apply:
- The amount appears as a prior year profit in the company's financial statements as at 31 December 2025
- It is held in cash or cash equivalent form
- The prescribed procedures are followed
How the tax burden changes
Under normal rules, a dividend distribution enters the shareholder's income tax base under Income Tax Law 24/1982 and can be taxed at progressive rates. The 7.5 percent paid under the decree is a final tax.
| Route | Taxation | Aggregated with the shareholder's other income? |
|---|---|---|
| Ordinary dividend distribution | Progressive income tax, 10 to 37 percent | Yes |
| Distribution under 45/2026 | Final 7.5 percent withholding | No |
A final tax means the distributed dividend is not aggregated with the shareholder's other income and is not subject to further income tax.
Applying and paying
Applications are filed at the taxpayer's own Tax Office branch using the forms issued by the department, and the tax must be paid in full at the time of application. For foreign currency transactions, the effective selling rate of the TRNC Central Bank on the transaction date applies.
Points to watch
- The tax paid cannot be offset against other tax liabilities
- It is not refundable
- It cannot be booked as an expense
- Missing the payment deadline or failing to follow the Tax Office procedures forfeits both the settlement right and the tax already paid
- Protection covers only amounts actually distributed: profits left undistributed remain open to standard reassessment
More than a tax saving
Leaving prior year profits inside the company for many years can produce different tax outcomes later, and it complicates how shareholders plan their use of company resources. The scheme makes the following possible:
- Transferring prior year profits to shareholders at a lower tax cost
- Simplifying the company balance sheet
- Planning the ownership structure on a sounder footing
- Reducing tax risks that may arise in future
Companies carrying large prior year profits in particular will benefit from treating this not merely as a tax discount, but as an opportunity for financial restructuring and dividend planning.
Is it worthwhile for every company?
No. Although a final 7.5 percent rate is a meaningful advantage for many taxpayers, every company's position differs and the decision has to be assessed company by company. The determining factors are:
- The company's financial structure
- How the prior year profits arose
- The ownership structure
- The shareholders' own tax position
- Cash flow and investment plans
Frequently asked questions
Which profits qualify for the scheme?
Amounts recorded as prior year profits in the company's financial statements as at 31 December 2025, held in cash or cash equivalent form.
Is the 7.5 percent a final tax?
Yes. It is a final tax: the distributed dividend is not aggregated with the shareholder's other income and is not subject to further income tax.
When is the application deadline?
Applications must reach the taxpayer's Tax Office by 31 July 2026 and the calculated tax must be paid within its statutory period. If the deadline is missed, the scheme is no longer available.
Can the tax paid be refunded or offset?
No. The tax paid cannot be offset against other tax liabilities, is not refundable and cannot be booked as an expense.
Are undistributed profits protected as well?
No. Protection applies only to amounts actually distributed under the scheme. Profits left undistributed remain open to standard examination and reassessment.
Sources
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To establish whether your company can benefit, to calculate the dividend that could be distributed and to analyse the tax advantage available, we strongly recommend contacting us before 31 July 2026.