Nikos Christodoulides, has introduced the tax reform plan aimed at strengthening the middle class, reducing social inequalities, and modernizing the country's fiscal framework. A key measure is the increase in the tax-free personal income threshold from €19,500 to €20,500. Additionally, a new set of income brackets will be implemented to ensure a more balanced tax distribution.

Under the revised tax system, annual earnings up to €20,500 will remain untaxed, while progressively higher tax rates of 20%, 25%, 30%, and 35% will apply to incomes above this threshold. Notably, the highest tax rate of 35% will now only apply to incomes exceeding €80,000, rather than the previous €60,000 threshold.

To provide targeted relief for families, the reform introduces various tax credits based on household composition and income levels. Households with a total gross income of up to €80,000 will benefit from credits for dependent children and higher education students, as well as deductions for mortgage payments on a first home or rental costs. This initiative is designed to support dual-income households and encourage higher female participation in the workforce.

The tax reform also introduces significant changes for businesses. The notional distribution of dividends will be abolished entirely, and a 5% withholding tax will be applied to actual dividend distributions for Cyprus tax residents domiciled in the country. At the same time, the corporate tax rate will increase from 12.5% to 15%.

Despite the corporate tax hike, the government estimates that businesses will experience an overall 8% reduction in their tax burden due to complementary measures. These include incentives for sustainable growth, such as accelerated and "super" deductions for green and digital investments.

The criteria for obtaining tax residency will also be tightened to ensure that only individuals genuinely residing and conducting business in Cyprus can benefit from local tax regulations. The "non-dom" regime will remain in place, as it is seen as a key driver of economic activity. However, introducing an annual fee for participants to enhance fiscal fairness is on the table.

The overall budgetary impact of the tax reform is estimated at approximately €151 million.