With a decisive vote in the House of Representatives, Cyprus has approved a sweeping tax reform package for the first time in 23 years, reshaping personal and corporate taxation while strengthening measures against tax evasion.

The reform package was passed by the Plenary with 36 votes in favour and 15 against, marking a milestone in Cyprus’ fiscal policy.

The legislation is set to enter into force on 1 January 2026, introducing higher tax-free thresholds, expanded family tax relief, business incentives and stricter enforcement powers for the Tax Department.

The newly approved tax regime significantly boosts support for households, particularly families with children, students and middle-income earners.

The tax-free income threshold rises to €22,000, up from €19,500, while new graduated tax allowances are introduced based on the number of dependent children and students. For families to qualify for additional tax relief, annual household income thresholds are set at:

• €100,000 for families with one or two children

• €150,000 for families with three or four children

• €200,000 for families with five or more children

Tax deductions for dependents are set at €1,000 for the first child or student, €1,250 for the second, and €1,500 from the third onwards. Additional deductions include:

• €2,000 for interest on serviced loans and rental payments

• €1,000 for green home investments and electric vehicle purchases

• Up to €500 for home insurance against natural disasters

At the same time, new personal income tax brackets are introduced:

• 20% on income from €22,001–€32,000

• 25% on €32,001–€42,000

• 30% on €42,001–€72,000

• 35% on income above €72,001

For all businesses operating in Cyprus, domestic and foreign alike, the reform introduces a corporate tax increase to 15% from 12.5%, aligning Cyprus with international tax standards.

However, the package also includes significant incentives:

• Abolition of deemed dividend distribution for profits generated after 1 January 2026

• Reduction of defence contribution on actual dividends from 17% to 5%

• Abolition of defence contribution on rental income

• Extension of loss carry-forward from five to seven years

• 120% super-deduction for R&D expenses extended until 2030

• Special 8% tax rate on crypto-asset disposal profits

• 8% flat tax on approved employee stock option schemes

• Increase of deductible entertainment expenses to €30,000

In addition, Provident Funds are fully exempted from taxation on investment activities, following unanimous approval of a parliamentary amendment.

A key pillar of the reform is the strengthening of tax enforcement. Measures include:

• Mandatory electronic or bank payments for rents above €500, effective July 2026

• Mandatory tax return submission for all individuals aged 25 and over

• Power for the Tax Commissioner to request asset and liability statements covering six years

• Access to banking data for tax purposes

• Sealing of businesses for non-compliance, undeclared income or tax debts

• Freezing of company shares for tax debts exceeding €100,000

Speaking in Parliament, House Finance Committee Chair Christiana Erotokritou described the reform as a “comprehensive legislative package” introducing a new tax philosophy that balances social fairness with economic competitiveness.

House President and DISY leader Annita Demetriou highlighted that parliamentary amendments strengthened support for families, young couples and small businesses, while maintaining Cyprus’ attractiveness as an investment destination.

Proposals submitted by AKEL for the introduction of an annual property tax on assets exceeding €3 million and a graduated levy on companies were rejected by the Plenary.

Alongside the tax reform, Parliament also approved legislation for the complete abolition of stamp duties, further reducing administrative and financial burdens for citizens and businesses.