Alexey Gubarev, Co-Founder & Board Member at Palta, believes Cyprus' new tax rates, resulting from the tax reform law that has finally been approved by the House, will increase Cyprus' competitiveness as an investment destination, adding that it is important that the reform is aimed not only at attracting new companies, but also at improving conditions for businesses already operating in Cyprus.
As he said in an interview for "IN Business Forecasting 2026", the reduction of the dividend tax rate from 17% to 5% will allow local companies to invest more funds into regional development.
Elsewhere, he says it will be a challenging year for tech companies, which will be prioritising profitability and the margin of each user rather than rapid expansion.
"We do not plan rapid growth in 2026. Our goals are focused on steady growth within the market, with a strong emphasis on increasing profitability," Gubarev revealed.
How do you foresee the development of the Cypriot economy in the new year, and what are its prospects? What do you see as the biggest risks, and how might they be addressed?
Cyprus has traditionally been a safe haven where international business could set up and thrive in a calm and secure environment. This has been traditionally the most important pillar of economic stability which has seen thousands of international businesses relocating to the island. Unfortunately, this factor is under serious threat as evidenced by recent events. Violent crimes, arson, damage to property and other similar crimes are putting the island's business stability at grave risk and unless the state intervenes to rebuild this trust and confidence in the local economy Cyprus might be confronted with the exit from the island of many international businesses. Confidence and security take ages to build but only a second to destroy and it is imperative that the state takes very drastic and active steps towards this direction.
Provided that the security issues are dealt with successfully by the state then it is likely that the economy will continue growing. In addition, there is an urgent need of speeding up processes for standard procedures that should not take up ordinarily a lot of time to be completed, like building permits. Finally, I believe that the state should start planning in a forward-looking manner and in doing so it is absolutely necessary to put in place large-scale infrastructure and development projects which will contribute and serve as an important driver of economic growth.
How do you expect your company’s sector in particular to perform in 2026? What major trends or changes do you anticipate, and what do you consider the most significant challenges?
In 2026, our sector is expected to face higher traffic acquisition costs, which will require companies to operate more efficiently. The focus will shift from simple user growth to increasing LTV (Customer Lifetime Value) — the total revenue a company earns from a customer over the entire period of interaction, including repeat purchases, subscriptions, and additional services.
It will be a challenging year, with companies prioritising profitability and the margin of each user rather than rapid expansion.
AI is also driving major changes across the industry. AI is already transforming product development, content creation, marketing, advertising and customer support. This marks the beginning of a major shift and the emergence of new opportunities. Companies that are able to integrate AI effectively into their operations will gain a strong competitive advantage. However, this window of opportunity is limited and is likely to last only for the next two years.
A strong trend taking root in the Cypriot business landscape is mergers and acquisitions. Do you expect this trend to become more pronounced in your sector as well?
I wouldn’t say that there is a strong increase in mergers and acquisitions in our sector in Cyprus at the moment. There are some asset purchases and sales, but these are mostly related to the real economy rather than the technology sector.
In the technology sector in Cyprus, apart from one landmark deal – the acquisition of Semrush by Adobe – there were very few notable M&A transactions this year. This deal is significant as it represents the largest exit of a company with an office in Cyprus.
At this stage, I don't see strong reasons to expect a noticeable increase in such deals in the technology sector next year.
What should we expect from your organisation’s plans and strategy for growth and expansion in 2026? What specific actions do you intend to take to support this direction?
We do not plan rapid growth in 2026. Our goals are focused on steady growth within the market, with a strong emphasis on increasing profitability. We aim for all companies within Palta to be profitable and to develop efficiently.
We are placing special focus on implementing AI technologies, which will allow our companies to work more effectively and make the most of their resources, without the need for a significant increase in staff.
The new year calls for the implementation of tax reform, taking place 22 years after the previous tax reform. How do you expect it to affect the Cypriot economy, businesses, and Cyprus' ability to attract foreign investment?
The new tax reform will help retain existing businesses in Cyprus. Some individuations are about to lose their tax-free status, and without changes, there is a risk that they could leave the island, as has happened in other countries.
It is important that the reform is aimed not only at attracting new companies, but also at improving conditions for businesses already operating in Cyprus. This is a strategically significant initiative that will support economic development through the companies already present.
The reduction of the dividend tax rate from 17% to 5% will allow local companies to invest more funds into regional development. The new tax rates increase Cyprus' competitiveness as an investment destination.
