The cabinet has approved a sweeping tax reform package, the country’s first in 22 years, which now heads to parliament for debate and approval.
Finance Minister Makis Keravnos described the reform as a “flagship project” that aims to distribute the tax burden more fairly, strengthen the middle class and low-income earners, and support small and medium-sized enterprises, which make up 98% of the Cypriot economy.
The package comprises six amendment bills. Through the reform, the government aims to provide relief to hundreds of thousands of workers and households whilst maintaining fiscal neutrality.
Tax breaks for families and students
The reform raises the tax-free threshold from €19,500 to €20,500, one of the highest in the European Union. For families earning below €80,000—or €100,000 for large families—the package includes:
- €1,000 tax credit per child
- €2,000 per child for single-parent families
- €1,000 per student
- €1,500 for mortgage interest or rent on primary residence
- €1,000 for energy upgrades or electric vehicle purchases
Keravnos said the measures mean 55% of workers will pay no tax, with the effective tax-free threshold exceeding €24,500 in many cases.
Major changes for businesses
The reform brings significant shifts for companies. From 1 January 2026, deemed dividend distribution will be abolished, whilst the special defence contribution on actual dividend distributions drops from 17% to 5%. The contribution on rental income will also be scrapped.
However, corporate tax will rise from 12.5% to 15%, and a new 8% rate will apply to profits from cryptocurrency disposal. The period for carrying forward losses extends from five to seven years.
Adjustments after consultation
Following talks with social partners, the government made several changes to the original proposals. The tax-free amount for voluntary retirement increases from €20,000 to €200,000, whilst plans for a property tax or business levy have been shelved for now.
For Non-Dom companies, the fee drops from €250,000 to €50,000 for five years to maintain incentives for foreign investment.
Tackling tax evasion
The reform introduces new enforcement mechanisms. Businesses found with irregularities will receive three warnings, and if problems recur within 30 days, they can appeal to the courts, which will decide whether to impose temporary closure or other penalties.
Keravnos called on parliament to approve the package by the end of 2025 so it can take effect on 1 January 2026, expressing confidence the reform will boost the economy and ease pressure on workers and families.
