Cyprus has implemented a comprehensive overhaul of its tax system. The newly approved legislation aims to enhance the country’s attractiveness as an international business center while also introducing measures to reduce the tax burden on low- and middle-income households. All provisions will take effect on January 1, 2026, unless stated otherwise.
Corporate Tax Measures
- The corporate income tax rate has increased to 15%, up from the previous 12.5%, to align with OECD global minimum taxation standards for multinational groups.
- The Special Defence Contribution (SDC) on dividend income has been substantially reduced to 5%, down from 17%.
- SDC on rental income has been fully abolished.
- Deemed dividend distribution rules no longer apply to profits generated after 2026.
- Stamp duty has been abolished for most agreements, with exemptions retained for real estate, banking, and insurance-related contracts.
- Income derived from cryptocurrency gains and qualifying stock options is subject to a flat 8% tax rate.
- The allowable period for tax loss carry-forward has been extended from five to seven years.
- The 120% R&D super-deduction has been prolonged until 2030.
- The maximum deductible amount for entertainment expenses has increased to €30,000, from €17,086.
Personal Tax Measures
- The personal income tax exemption threshold has been raised to €22,000, from previously €19,500.
- Revised income tax brackets are introduced as follows:
- 20% on income between €22,001 and €32,000
- 25% on income between €32,001 and €42,000
- 30% on income between €42,001 and €72,000
- 35% on income exceeding €72,000
Newly Introduced Personal Tax Allowances
A. Family and Student Allowances (up to age 24)
Annual deductions per dependent:
- €1,000 for the first dependent
- €1,250 for the second dependent
- €1,500 for the third and any subsequent dependents
Eligibility is determined by total household income:
- Up to €100,000 for households with 1–2 dependents
- Up to €150,000 for households with 3–4 dependents
- Up to €200,000 for households with five or more dependents
B. Housing, Sustainability, and Risk-Protection Incentives
Tax deductions and allowances include:
- Loan interest and rent, up to €2,000
- Green investments, including electric vehicle purchases, up to €1,000
- Home insurance against natural disasters, up to €500
C. Termination Payments
- Severance payments arising from employment termination will be taxed at 20%, with a €200,000 tax-free allowance.
D. Capital Gains
- Increased tax-free thresholds apply for capital gains taxation.
Compliance Enhancements and Anti-Avoidance Measures
A. Filing Obligations
- All individuals aged 25 and above are required to submit annual tax returns, irrespective of income level.
B. Rent Payment Transparency
- Rental payments exceeding €500 must be settled through electronic means, with implementation scheduled for 1 July 2026.
C. Strengthened Enforcement Powers
The Tax Commissioner has been given enhanced authority, including the power to:
- Request statements of assets and liabilities covering a six-year period
- Access banking information from local financial institutions
- Temporarily suspend business operations for serious non-compliance, subject to legal challenge
- Impose shareholding freezes where outstanding tax liabilities exceed €100,000
Affected taxpayers retain the right to challenge enforcement actions through the courts.
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