The House Finance Committee examined on Monday the progress of the implementation of the tax reform, with the Tax Commissioner, Sotiris Markidis, requesting the Committee’s assistance on a number of issues that require clarification or possible legislative amendments, following gaps identified at the implementation stage.
As Markidis explained, the Tax Department’s first priority was to inform individuals of the changes, noting that January is the first month in which salaried employees will be paid under the new tax regime. “All taxpayers who were paying tax will see a reduction in the income tax they pay. It is clear that they will receive a higher salary, whether or not they manage to submit form TD59, as the reform increased the tax-free threshold and introduced more favourable tax brackets,” he said.
Ongoing seminars
He clarified that there is no urgent need for everyone to complete the relevant form for deductions in January, as any amounts will be adjusted accordingly if the form is submitted at a later stage.
One of the first issues the Department had to address, he said, concerned the TD59 form itself. In order to avoid including personal data such as the number of children or household income, each taxpayer must understand which deductions they are entitled to and calculate and claim them accordingly. He added that the TD59 form was reviewed and approved by the Commissioner for Personal Data Protection.
To facilitate public information, from 9 January the Tax Department published on its website a detailed explanatory guide, FAQs and practical examples, “encouraging the public to familiarise themselves with the new system”. In addition, from mid-January the Department organised extensive seminars for OEB, KEVE, ICPAC, employers and the two major trade unions, to explain the provisions of the reform. “Around 10,000 people will attend these sessions within a month,” he said.
Markidis noted that another issue identified was that loans for home renovation were not explicitly included in the legislation among cases where interest subsidies apply. “We considered that it does apply, with your approval,” he said, with the Chair of the Committee, DIKO MP Christiana Erotokritou, confirming that this had been the intention of the House.
Deductions
Another issue concerns green investments and the timing of payment in order to qualify for tax deductions. The Tax Department follows the invoicing date, with effect from 1 January 2026.
Similarly, with regard to the purchase of electric vehicles, there was uncertainty as to whether the deduction should apply based on the purchase date or on repayment, in cases where the vehicle is financed through bank instalments. “I believe it should apply from the outset, based on the purchase, and not on the repayment of instalments,” he said.
Markidis added that there are additional concerns and a possible need for further amendments, but requested time to assess whether further issues arise. By way of example, from 1 July all rent payments must be made via electronic transfer. However, the legislation does not provide for an administrative fine for non-compliance, which will need to be addressed.
Complexity of modern family
An in-depth discussion also took place on the calculation of household income and child-related tax deductions, due to the complexity of modern family structures, as the Commissioner explained.
According to an official of the Tax Department, the income criteria adopt provisions from the child benefit legislation. Under the reform, for deductions relating to interest, rent, or the purchase of electric vehicles, photovoltaic systems and similar items, all children of the family are counted as dependants when calculating household income - even if they leave the family home and form their own household. For example, a family with five children will permanently fall under the €200,000 household income threshold.
It was further clarified that, as stipulated by law, household income includes the income of all persons living under the same roof, not only the parents.
The Commissioner proposed that “where there is at least one dependent child, all children should be taken into account for deductions related to loans, rent and green purchases, but the children’s income should not be included in the calculation of household income”.
It was also noted that certain non-taxable income is nevertheless included for the purposes of calculating household income thresholds. Such income includes maintenance payments, grants and state benefits, such as subsidies for photovoltaic systems or the purchase of electric vehicles.
Regarding maintenance payments, the Tax Department clarified that the payer does not receive a tax deduction, the recipient is not taxed on the amount, but the sum is included when calculating the recipient’s household income.
Single parents
It was further clarified that in single-parent families, the custodial parent receives a double deduction, while the other parent, if meeting the income criteria (€40,000), is entitled to a single deduction per child.
In practice, the Commissioner explained, “the benefits of a single-parent family apply where the child resides. If there is a court decision providing for equal time with both parents, then a single-parent household is not established, household incomes are calculated jointly and the single-parent provisions do not apply”.
In cases where a divorced parent without custody does not have overnight stays with the child, but subsequently remarries and forms a new family, their income threshold increases to €100,000 and they are entitled to a dependant deduction for the child from the previous marriage, despite the child living under a different roof.
DISY MP Onoufrios Koullas pointed out that when the household income threshold was increased to €100,000, the threshold for single individuals remained at €40,000. He proposed that this be increased to €50,000 proportionately.
Dependants until the age of 24
In response to a remark by AKEL MP Andreas Kafkalias that such changes must be introduced by the Ministry of Finance for political and constitutional reasons, the Commissioner clarified that he was merely presenting issues identified in practice, noting that “we have not received instructions from the Ministry”.
It was also clarified that students, whether married or unmarried, and whether they have children or not, continue to be considered dependants provided they are under the age of 24.
In addition, the child deduction applies for the entire year, even if the child is born on 31 December. The same applies in the event of the death of a child during the year.
In closing, the Commissioner sought to reassure the Committee, stating that it would be unfair to portray the system as overly complex, noting that “every beginning is difficult” and that these issues will be clarified during the first year and apply consistently in subsequent years.
In statements after the meeting, the Chair of the Committee, DIKO MP Christiana Erotokritou, stressed that just five weeks after the tax reform was passed, it is already having an impact on the incomes of workers and taxpayers. “That is what counts in politics for us: that what we vote for in plenary has an immediate effect on people’s pockets,” she said.
ELAM MP Sotiris Ioannou referred to divorced parents, for whom the income threshold for deductions remains low at €40,000, “despite the fact that they also pay maintenance or other expenses for their children without receiving any deduction. There is a commitment that this amount can be increased, and this is something we will raise in the coming weeks in order to address this major injustice,” he said.