The Council of Ministers on Tuesday approved the Government’s tax reform proposal, comprising six amendment bills that will now be submitted to the House of Representatives for debate and approval. Finance Minister Makis Keravnos described the reform as “a significant and emblematic initiative of the President of the Republic now moving into implementation.”
Over 20 years since last reform
Speaking after the Cabinet meeting, Keravnos said the reform marks the first major overhaul of Cyprus’ tax system in 22 years, aimed at ensuring a fairer distribution of the tax burden, strengthening low- and middle-income households, and enhancing the growth prospects of small and medium-sized enterprises (SMEs), which make up about 98% of Cypriot businesses.
He added that the reform also seeks to reinforce the resilience and growth trajectory of the economy, while boosting Cyprus’s competitiveness for foreign investment, particularly in sectors linked to technology and digital transition.
Socially oriented measures
Keravnos underlined the social dimension of the reform, which includes a series of tax reliefs designed to support family income depending on household composition, children, students, and large families.
Key provisions include:
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Increase in the tax-free threshold from €19,500 to €20,500, among the highest in the EU.
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Tax deductions for households with annual income below €80,000 (couples), €100,000 (large families), or €40,000 (single individuals):
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€1,000 per child,
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€2,000 per child for single-parent families,
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€1,000 per student,
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€1,500 deduction on mortgage interest or rent for main residence,
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€1,000 deduction for energy upgrades or purchase of electric vehicles.
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The reform also introduces new anti-tax evasion measures.
Business measures
For businesses, the Government will abolish the deemed dividend distribution tax for profits earned after 1 January 2026. The defence contribution on actual dividends will be reduced from 17% to 5%, and the levy on rental incomewill be abolished.
At the same time, the corporate tax rate will rise from 12.5% to 15%, while capital gains on crypto assets will be taxed at a flat 8% rate. Loss carryforward periods will be extended from five to seven years.
Keravnos stressed that the overall fiscal impact will be budget-neutral, maintaining the reform’s original goal of balanced implementation.
Adjustments following consultations
The Minister said that several amendments were made following consultations with business and professional bodies. Notably, tax exemption for voluntary retirement schemes has been raised from €20,000 to €200,000.
Proposals for property and business levies were not adopted “for now,” though the Government may revisit them in the future.
Regarding the Non-Dom regime, the originally proposed €250,000 renewal fee for companies after 17 years has been reduced to €50,000 for a five-year period, in order to maintain Cyprus’s investment appeal.
Green taxes and household relief
Keravnos confirmed that green taxes are not included at this stage, although discussions are ongoing across the EU. Should such measures be introduced, the Government would redistribute revenues back to households as compensation.
With the new reliefs, many households will enjoy effective tax-free income above €24,500, while about 55% of employees will pay no income tax at all, the Minister noted.
Expressing optimism, Keravnos called on Parliament to pass the six bills by year-end so that the new framework can take effect on 1 January 2026.
“This package will provide a major boost to the economy and meaningful relief to households and workers, especially the middle class,” he said.
He also announced refinements to the business closure procedure for tax violations: instead of automatic administrative closure, cases will now require a court order following repeated warnings.
Finally, Keravnos said the proposal regarding executive salary taxation tied to the reduction of the defence contribution has been temporarily withdrawn and will be revisited in 2026.