Cyprus’ parliament on Monday approved the long-anticipated tax reform, alongside five government bills and two legislative proposals abolishing stamp duties.
At the core of the reform are sweeping changes to personal and corporate income taxation, set to take effect from 1 January 2026. These include an increase in the tax-free income threshold to €22,000, a revision and widening of tax brackets, and the introduction of new tax allowances covering families, housing costs, rent, energy upgrades to homes and the purchase of electric vehicles. At the same time, the corporate tax rate will rise to 15%.
New tax framework from 2026
Parliament also approved significant amendments to the Special Defence Contribution (SDC). These include the abolition of the levy on deemed dividend distribution for profits generated after 2026, a reduction of the SDC rate on actual dividend distributions to 5%, the abolition of the levy on rental income, and the introduction of anti-abuse measures targeting concealed distributions. Provisions were also adopted regarding the taxation of interest, dividends and income earned by non-residents.
Particular emphasis was placed on modernising tax assessment and collection procedures. Under the new framework, the vast majority of individuals and legal entities will be required to submit tax returns, record-keeping periods will be extended, and the Tax Department’s audit and collection powers will be strengthened. New mechanisms for freezing assets and shares in cases of large tax debts were also introduced, accompanied by procedural safeguards.
Reform set to boost growth
Finance Minister Makis Keravnos welcomed the adoption of the reform, stating that the new tax framework will steer the economy towards sustained growth, improved competitiveness and effective support for Cypriot families in the coming years.
He described the vote as the culmination of a lengthy and demanding process, noting that tax reform was a key pre-election commitment of President Nikos Christodoulides’ government. According to Keravnos, the reform forms part of a broader policy agenda aimed at modernising society, strengthening entrepreneurship, enhancing Cyprus’ international standing and improving living standards, while increasing economic resilience.
“The new tax framework, which will come into force on 1 January 2026 as promised, ensures a fairer distribution of the tax burden and strengthens social cohesion,” the minister said. He added that it supports the real economy, enhances the competitiveness of Cypriot businesses and boosts the country’s attractiveness to productive, high-quality foreign investment.
On personal taxation, Keravnos said the reform significantly reduces the tax burden on households, particularly families with children, providing tangible support to vulnerable groups and the middle class, which he described as the backbone of both society and the economy.
The minister thanked officials at the Ministry of Finance, the University of Cyprus’ Economics Research Centre, social partners, members of the parliamentary finance committee and political parties for their contribution and constructive stance during the legislative process.
KEVE hails 'landmark reform'
The Cyprus Chamber of Commerce and Industry (KEVE) described the reform as a “landmark” that modernises the tax system and aligns it with the real needs of the modern economy.
In a statement, KEVE said the reform represents a historic opportunity to enhance Cyprus’ competitiveness, strengthen stability and transparency, and reinforce the country’s international appeal as a business and investment destination. It welcomed the incorporation of long-standing proposals from the business community, including the abolition of deemed dividend distribution and the reduction of the SDC on dividends to 5%.
KEVE also highlighted improvements in legal certainty, balance and investor confidence, noting that safeguards were introduced to protect sound businesses while maintaining effective tax enforcement. The chamber stressed that the reform also has a meaningful social impact, with the increase in the tax-free threshold and targeted family support measures boosting household disposable income and helping address low birth rates.
PASDY welcomes changes
The civil servants’ union PASDY also welcomed the approval of the tax reform bills, estimating that taxpayers stand to benefit by between €500 and €2,000 annually, with substantial relief for the middle class.
PASDY expressed satisfaction with the government’s initiative for a comprehensive overhaul of the tax system, underlining that a modern and fair tax framework is a cornerstone of economic stability, social justice and sustainable development. It added that the new legislation is expected to significantly curb tax evasion and avoidance, thereby strengthening state revenue collection.
The union noted that several of its proposals, submitted in 2022 in cooperation with other public-sector organisations - including adjustments to tax brackets to account for inflation and expanded income criteria for tax allowances, particularly for children - were adopted and incorporated into the final legislation.
PASDY concluded that the reform marks a meaningful step towards easing the tax burden on the middle class, which it described as a central pillar of Cypriot society.
This article was originally published on the Greek-language Politis website, with information from CNA