02/01/2026
Cyprus Tax Reform Package
Parliament approval: 22 December 2025
Effective date: 1 January 2026
Cyprus Parliament approved a comprehensive package of tax law amendments aimed at preserving Cyprus’s competitiveness as an international business and investment hub, while aligning with OECD and international compliance standards.
1. Corporate Tax Changes
Corporate Income Tax
Corporate tax rate increased from 12.5% to 15%, aligning with OECD Global Minimum Tax requirements for multinational groups.
Special Defence Contribution (SDC)
SDC on dividends reduced from 17% to 5%.
SDC on rental income abolished.
SDC on deemed dividend distributions abolished for profits earned from 2026 onwards.
Other Corporate Tax Measures
Stamp duty abolished, except for:
Real estate contracts
Banking contracts
Insurance contracts
Flat 8% tax introduced on:
Cryptocurrency gains
Gains from approved stock option schemes
Loss carry-forward period extended from 5 to 7 years.
R&D super-deduction (120%) extended until 2030.
Entertainment expenses deduction cap increased to €30,000 (from €17,086).
2. Personal Income Tax Changes
Tax-Free Threshold & New Tax Bands
Tax-free threshold increased from €19,500 to €22,500.
New personal income tax brackets:
20% on €22,501 – €32,000
25% on €32,001 – €42,000
30% on €42,001 – €72,000
35% on €72,001+
3. New Personal Income Tax Reliefs
A. Child / Student Deductions (up to age 24)
Per child/student deduction:
€1,000 – first child
€1,250 – second child
€1,500 – third and each additional child
Eligibility based on total household income:
Up to €100,000: 1–2 children
Up to €150,000: 3–4 children
Up to €200,000: 5+ children
B. Housing, Green & Resilience Deductions
New deductions include:
Up to €2,000 for:
Loan interest
Rental payments
€1,000 deduction for green home investments, explicitly including electric vehicle purchases.
Up to €500 for home insurance against natural disasters.
C. Severance Payments
Severance payments due to employment termination taxed at 20%.
€200,000 tax-free allowance applies.
D. Capital Gains Tax
Capital gains tax-free thresholds increased (details to be specified in implementing legislation).
4. Anti-Evasion & Compliance Measures
A. Mandatory Tax Filings
All individuals aged 25 and over are required to file an annual tax return.
B. Electronic Rent Payments
Rent payments exceeding €500 must be made electronically.
Reported effective date: 1 July 2026.
C. Expanded Enforcement Powers
The Tax Commissioner is granted enhanced powers, including:
Requesting six-year asset and liability statements.
Access to banking records from Cyprus-based banks.
Authority to seal business premises for serious non-compliance (e.g. non-filing, failure to issue receipts, unpaid tax debts), subject to judicial review.
Freezing of shares where tax debts exceed €100,000.
