‘Cyprus already has highest tax-free threshold in the EU’
Finance Minister Makis Keravnos has ruled out the prospect of raising the tax-free income threshold beyond €20,500, signalling a firm stance as the government moves ahead with its new tax reform.
As reported by Economy Today, Keravnos delivered a lecture on Cyprus’ new tax reform at the University of Cyprus, where he made clear that, despite various suggestions for further increases, the government would not entertain such proposals.
“If we increase tax-free income beyond the proposed amount of €20,500, the outcome will be uncertain,” he said, adding that “Cyprus already has the highest tax-free threshold in the EU.”
As it stands, around 60 per cent of employees in Cyprus are not subject to income tax. A further rise would mean that 75 per cent of workers would pay no tax at all.
“I have not heard of a country where 75 per cent of employees are not taxed and this country continues to exist,” he said.
Keravnos stressed that the current reform package is the result of thorough consultations with all relevant stakeholders.
“The proposals we presented balance all the suggestions we received and discussed with economic bodies and associations,” he noted, implying little room remains for deviation.
At the same time, he repeated that announced tax breaks would be tied to key policy goals—specifically demographic support, affordable housing, and the green transition.
He said that these breaks will be linked to factors such as family composition, the cost of acquiring a first home, and energy-efficient upgrades of households.
Turning to corporate tax, Keravnos described the proposed increase from 12.5 per cent to 15 per cent as “marginal and small”.
While modest, this adjustment, he argued, enhances Cyprus’ international credibility by dispelling the perception of a tax haven, while still keeping the island competitive for global businesses.
For tech firms in particular, he added, the impact of the increase would be negligible.
According to the Finance Minister, “the overarching goal of the reform is to create a fairer, more competitive system that boosts public confidence and bolsters the country’s appeal to investors”.
“The reform”, he said, “will also strengthen efforts to tackle tax evasion and avoidance“.
Green taxation also featured prominently in his address. When asked about new environmental levies, Keravnos pointed to obligations inherited from the previous administration, distancing the current government from measures such as fuel, sewage, water, and accommodation taxes.
“These are not part of a European directive,” he clarified, “but stem from commitments made by the previous government under the Recovery and Resilience Fund.”
Originally due by November 2023, these commitments were postponed until May 2025 after lengthy negotiations, he added.
“We have tried, and are still trying, to reduce or even abolish these commitments,” Keravnos said, though he admitted this remains a challenge.
Nevertheless, he emphasised that any revenues from green taxes would be offset by other measures, as the aim is not fiscal gain but a shift towards more environmentally responsible behaviour.
Finally, the Minister stressed that the tax reform is guided by the principle of fiscal neutrality and aims to support economic growth and social welfare through a fairer redistribution of the tax burden.
Keravnos said he was “optimistic that the political system would respond responsibly to the proposals, allowing for their timely approval”.
Meanwhile, discussions with trade unions, industry stakeholders and political parties are ongoing and, according to the minister, progressing well.
Finally, he mentioned that the full rollout of the reform is expected by autumn.
