The government’s new tax reform package, consisting of six bills approved yesterday by the Council of Ministers, introduces a range of tax incentives for both individuals and legal entities.

The bills are expected to be submitted to the House of Representatives today and will simultaneously be published on the websites of the Ministry of Finance and the Tax Department.

“This tax reform aims to ensure a fairer distribution of the tax burden, to support low- and middle-income groups, and to strengthen the growth prospects of businesses,” said Finance Minister Makis Keravnos following the Cabinet meeting.

According to Brief sources, the initial study prepared by the University of Cyprus Economics Research Centre underwent 33 amendments, most of which concern corporate taxation provisions.

The tax-free income threshold will be increased from €19,500 to €20,500, applied uniformly across all taxpayers.

According to the Finance Minister, with the additional reliefs available to households, the total tax-free income could exceed €24,500 in many cases.

For households where the annual family income of spouses or cohabiting partners is below €80,000, for large families below €100,000, or for single individuals below €40,000, the following tax deductions will apply:

• €1,000 per child, or €2,000 per child for single-parent families

• €1,000 deduction for each university student

• €1,500 deduction for interest on home loans or rent for a primary residence

• €1,000 deduction for energy upgrades of the main home or for the purchase of a new electric vehicle

Under the new corporate tax framework:

• The deemed dividend distribution will be abolished for profits earned after January 1, 2026.

• The Special Defence Contribution (SDC) on actual dividend distributions will drop from 17% to 5% for profits generated after January 1, 2026.

• The SDC on rental income will be abolished.

• The corporate tax rate will increase from 12.5% to 15%.

• A flat tax rate of 8% will be introduced on profits from the disposal of crypto assets.

• The loss carry-forward period will be extended from 5 years to 7 years.

• Companies implementing voluntary exit schemes will be allowed to provide tax-free compensation up to €200,000.

The initial proposal, which suggested taxing income from the first €20,000, has been withdrawn. Similarly, the provision to impose a property tax or related levy on businesses has been removed, despite being included in the University of Cyprus’ original study.

A key point of debate during the drafting process concerned Non-Dom companies. Initially, the proposal required a €250,000 annual fee for companies maintaining the Non-Dom status for 17 years and wishing to renew it.

Following revisions, the fee was reduced to €50,000 for a five-year period to preserve Cyprus’s competitiveness in attracting foreign businesses.

Additionally, the provision linking director salary determination to the defence contribution reduction from 17% to 5% has been removed, after facing strong opposition from affected parties. The Ministry of Finance is expected to submit a new, more balanced proposal on this matter.

A significant part of the reform also focuses on combating tax evasion. Although Minister Keravnos did not elaborate, sources indicate that the Tax Department is preparing to deploy new advanced tools to strengthen tax collection and enforcement.