Cyprus Tax Reform Approved by Parliament

On 22 December 2025, the Cyprus Parliament approved five out of six legislative bills forming part of the long-awaited tax reform. The approved measures will enter into force on 1 January 2026.

This comprehensive reform represents a major overhaul of the Cyprus tax framework. Its objectives include a fairer allocation of the tax burden, enhanced support for households and SMEs, and the modernisation of the tax system in line with current economic conditions and OECD/EU standards. The reform seeks to safeguard Cyprus’ position as a competitive and attractive business and investment hub.

Key Measures Introduced

• Corporate tax rate increased from 12.5% to 15%
  (Partial or full exemptions for certain types of income remain unchanged)
• Cryptocurrency taxation:
  Gains from disposal of cryptocurrencies taxed at 8%
  (Losses may be offset against gains from the same year)
• Tax loss carry-forward extended from 5 to 7 years
• Abolition of stamp duty
• Abolition of Deemed Dividend Distribution (DDD) for profits earned from 1 January 2026 onwards
• Special Defence Contribution (SDC) on dividends reduced from 17% to 5% on actual dividend distributions of profits earned from 1 January 2026 onwards
  (Applicable only to Cyprus-domiciled resident individuals)
• Abolition of 3% SDC on rental income
• Stock options: Benefits taxed at 8% where granted under an approved employer plan
• Ex-gratia termination payments:
  Exempt up to €200,000 with any excess taxed at 20%
• Entertaining expenses:
  Maximum deductible amount increased from €17,086 to €30,000
• R&D incentives:
  Extension until 2030 of the 120% super-deduction for qualifying R&D expenditure related to IP assets

Personal Income Tax Changes

Tax-free threshold increased from €19,500 to €22,000

New personal income tax brackets:

• €22,001 to €32,000 @ 20%
• €32,001 – €42,000 @ 25%
• €42,001 – €72,000 @30%
• Over €72,000 @ 35%

Targeted Family and Social Deductions

Child deductions per parent:

• €1,000 for the first child
• €1,250 for the second child
• €1,500 for the third and subsequent children

Eligibility is based on family income and size:

• Up to €100,000 for families with up to 2 children
• Up to €150,000 for families with 3–4 children
• up to €200,000 for families with 5 or more children

Additional deductions include:

• €2,000 for housing loan interest or rent
• €1,000 for green investments / electric vehicles
• Up to €500 for home insurance against natural disasters
  

Mandatory submission of tax returns for all individuals aged 25 and above

Enhanced Powers of the Tax Commissioner

The amended legislation significantly strengthens the powers of the Commissioner of Taxation, particularly in relation to tax collection and access to information, regardless of banking or professional confidentiality.

These powers include:

• The right to seal businesses that are non-compliant with tax obligations
• The ability to freeze company shares where tax debts exceed €100,000

PGE&Co remains at your disposal for any clarifications and for further assistance that might be needed on this or on any other matter.