Effective 15 April 2026, North Cyprus's Decree-Law 45/2026 (YGK 45/2026), published in Official Gazette No. 70, allows TRNC corporate taxpayers to distribute retained earnings accumulated on their balance sheets up to 31 December 2025 at a flat 7.5% withholding rate. The Decree was approved by the Council of Ministers under Article 112 of the TRNC Constitution (Decision No. Ü(K-I)612-2026, 14 April 2026; Motion No. 652/2026) and laid before the Republican Assembly.
What Is YGK 45/2026 — A Settlement, Not a Rate Reduction
As expressly stated in the recitals to Articles 3 and 5, the regulation operates as a one-time, time-limited tax settlement mechanism. Its purpose is to regularize shareholder dividend income that has been partially or wholly omitted from prior personal income tax declarations and to collect previously unpaid income tax through this route.
Scope (Article 4)
- Eligible taxpayers: TRNC corporate income tax payers (legal entities).
- Covered amounts: Retained earnings accumulated on the "prior year profits" account up to 31 December 2025, undistributed to shareholders, in monetary capital or cash-equivalent form.
- Beneficiaries: Resident individual income taxpayers (the shareholders) receiving the dividend distribution.
The Rate (Article 6)
Article 6 of the Decree provides as follows: "In accordance with the rules of this Decree, tax shall be calculated at 7.5% (seven and a half percent) on the resident individual income taxpayers in respect of distributed dividends declared under Article 5 above."
This rate replaces the progressive income tax brackets under Income Tax Law 24/1982 (which run from 10% to 37% depending on the taxable base) and the standard dividend withholding rules. Under the standard regime, the retained earnings are first subject to 15% Corporate Income Tax at the entity level; because this corporate tax is credited against the personal income tax computed at the shareholder level, the effective tax burden lands at approximately 22%.
Nature and Limits of the Settlement (Articles 8-10)
- Final tax liability: The 7.5% paid under the regime is a final tax; it is not aggregated with the shareholder's other income.
- No reassessment — but only on what is distributed: Under Article 8, the no-reassessment protection applies only to the extent of dividend amounts actually distributed.
- No set-off, no refund: Article 9 prohibits any offset against other tax liabilities or refund of the tax paid.
- Not deductible: Article 10 prohibits deduction of the tax as a business expense in any tax period.
Retained earnings remaining on the balance sheet after the settlement remain fully exposed to retroactive assessment under the standard regime. Where a taxpayer elects a partial distribution, the undistributed balance does not benefit from the settlement protection. The distribution decision is therefore strategic, not tactical.
Loss-of-Benefit Scenarios (Article 7(4))
Taxpayers who apply under the Decree forfeit both the settlement entitlement and the tax already paid in any of the following four circumstances; the unsettled balance reverts to the standard tax regime together with the remaining corporate earnings:
- (A) Failure to pay the assessed tax within the prescribed period
- (B) Obstruction of the assessment and accrual procedures
- (C) Failure to act within the prescribed application window
- (Ç) Refusal to implement the Tax Office's procedures or the creation of disputes over them
In our view, the phrase "refusing to implement the Tax Office's procedures and creating disputes" in clause (Ç) is not defined within the Decree. Which behaviors will qualify as "creating a dispute," and whether administrative appeal rights will be accepted within this scope, will depend on the Tax Office's interpretation in practice and on any future circulars. In light of this interpretive ambiguity, the declared amount and supporting documentation should be prepared with care prior to application, and the application should be handled under our office's supervision.
Application, Payment and Effective Period
Applications are filed at the taxpayer's home Tax Office branch using declarations and forms to be issued by the Department. The application deadline is the last business day of the third month following entry into force (~31 July 2026); the tax is payable in full upon declaration (Articles 7 and 12). The Decree took effect on 15 April 2026 and lapses on the last business day of December 2026 (~31 December 2026) under Article 15. For foreign-currency transactions, Article 13 fixes the taxable base at the TRNC Central Bank effective sale rate on the transaction date.
Key Dates
15 Apr 2026 | YGK 45/2026 entered into force.
~31 Jul 2026 | Application deadline (last business day of July).
~31 Dec 2026 | YGK 45/2026 lapses — the mechanism closes entirely.
Whether the mechanism is meaningful for your business depends not only on the rate comparison but also on your distribution history, the accumulated balance carried, and the precise scope of settlement protection that would apply to your case. To assess your balance sheet position and shareholder structure under YGK 45/2026 and to manage the application process, please contact the N.Akman & Co. Tax Advisory team. Please don't hesitate to contact us with any questions.
