Significant changes to the tax system of Cyprus, which will affect thousands of citizens and businesses, are expected to be brought about from 1 January 2026 by the passage of the tax reform legislation by the Plenary of the Parliament on 22/12/2025.
Changes and deductions for individuals
In detail, the main changes brought about by the tax reform for individuals concern an increase in the tax-free income to €22,000 and the granting of additional deductions depending on the number of children and income.
Tax Deductions for Children
Beneficiaries of additional tax deductions will be families with the following income criteria:
- Families with one or two children: annual income up to €100,000.
- Families with three-four children: annual income up to €150,000.
- Large families (more than five children): annual income up to €200,000.
Tax deductions will be staggered for children and students up to 24 years of age as follows:
- One child/ student: €1,000.
- Second child/ student: €1,250.
- From the third and above: €1,500.
Other Deductions
For interest on a serviced loan and for rent: tax deduction of €2,000.
For green investments in homes (purchase of an electric vehicle): deduction of €1,000.
New Tax Scales
- €0 - €22,000: 0%
- €22,001 - €32,000: 20%
- €32,001 - €42,000: 25%
- €42,001 - €72,000: 30%
- €72,001 & above: 35%
Changes and discounts for legal entities
Regarding legal entities and Cypriot businesses, the Plenary of the Parliament approved the following regulations:
- Dividends: Complete abolition of the deemed dividend distribution on profits acquired after 1/1/2026. Reduction of the extraordinary defense contribution rate on the actual distribution from 17% to 5% for profits after 1/1/2026.
- Corporate Tax: Increase from 12.5% to 15%.
- Rents: Abolition of the imposition of the extraordinary defense contribution on rental income.
- Fees: Complete abolition of stamp duty.
- Cryptocurrencies: Taxation of profits from the disposal of cryptocurrencies at 8%.
- Loss Carryforward: Extension of the loss carryforward period from 5 years to 7 years.
- Investments & Benefits: Extension until 2030 of the deduction for research and development expenses of an intangible asset. Increase to €30,000 of the limit for deductible entertainment expenses. Taxation at a flat rate of 8% on stock options.
Capital Gains Tax Exemptions
- Sale of primary residence (after restructuring): amount €450,000.
- Disposal of agricultural land by a natural person (farmer by main occupation): amount €50,000.
- Gain from disposal of primary residence: amount €150,000.
Anti-tax evasion measures
- Rent Payment: Mandatory payment of rent exceeding €500 via bank transfer or electronic payment. The entry into force of the mandatory electronic submission was set for July 1, 2026.
- Tax Return: Mandatory submission by all natural persons from the age of 25.
- Audit and Record Keeping: The Tax Commissioner may request a six-year statement of assets and liabilities. Records must be kept for at least six years.
- Sanctions: The Registrar has the power to seal businesses for failure to submit declarations, failure to issue legal receipts or tax debts. Possibility of freezing company shares for debts exceeding €100,000.