Cyprus is entering a new era of tax policy as Parliament prepares to approve the government’s tax reform package on Monday, with support from DISY, DIKO, DIPA and EDEK. The reform introduces sweeping changes for households and businesses, aiming to create a simpler, more progressive and more efficient system. It affects nearly every income stream, from salaries and pensions to rent, dividends and interest, and it introduces adjustments to capital gains taxation and to the defence contribution.
For most salaried employees, the revised structure is expected to reduce withholding from 2026 onwards, particularly for middle-income earners. Self-employed professionals will face stricter rules for documenting income but will also benefit from clearer provisions on the deductibility of business expenses. Shareholders of Cypriot companies will see a significant reduction in the tax burden on dividends.
Income tax changes for individuals
The reform revises tax brackets and increases the basic allowance with the aim of easing the burden on lower and middle incomes.
The tax-free threshold rises to €22,000. The new brackets are as follows:
• €22,001 to €32,000 taxed at 20 percent
• €32,001 to €42,000 taxed at 25 percent
• €42,001 to €72,000 taxed at 30 percent
• Above €72,001 taxed at 35 percent
Deductions become more targeted and scale with family size. Families with children or dependent students qualify for the following reductions:
• €1,000 for the first child or student
• €1,250 for the second
• €1,500 for the third and for every additional dependant
Additional deductions include €2,000 for mortgage interest and rent, €1,000 for green investments such as home energy upgrades or the purchase of an electric vehicle, and up to €500 for home insurance against natural disasters.
Eligibility thresholds also change. Families with one or two children qualify for deductions if their annual income is up to €100,000. Families with three or four children qualify if their income is up to €150,000. Families with more than five children qualify if their income is up to €200,000.
Corporate taxation and business measures
Businesses face a parallel restructuring.
The rule of deemed dividend distribution is abolished for profits generated after 1 January 2026. The defence contribution on actual dividends falls from 17 percent to 5 percent.
Corporate income tax increases to 15 percent, bringing Cyprus closer to international norms.
The period for carrying forward losses is extended from five to seven years. The maximum deductible entertainment expenses rise to €30,000.
Additional regulatory adjustments
The reform introduces a dedicated 8 percent tax on profits from the disposal of crypto assets, and the defence levy on rental income is abolished entirely.
Strengthening enforcement and tax collection
To offset the fiscal cost of the reform, the government introduces several measures aimed at broadening the tax base and improving compliance.
All individuals aged 25 to 71 must file a tax return regardless of income.
The Department of Taxation gains expanded powers to obtain financial information quickly, impose graduated penalties and intervene earlier in cases of non-compliance.
Key elements include:
• Mandatory electronic payment for rents above €500
• The right to request six-year asset and liability statements from taxpayers
• Access to bank data on interest credited to accounts, including tax residence and identification details
• The introduction of business closures for failure to file returns or issue receipts
• The power to freeze company shares for tax debts above €100,000
• Collection through third parties such as employers or banks when liabilities are overdue
Card and electronic payments will also count toward participation in state lotteries that offer monetary or in-kind rewards as an incentive for digital transactions.
The combined result is a more proactive taxation authority with the tools to detect inconsistencies earlier and apply proportionate enforcement.