Filenews 8 November 2025 - by Eleftheria Paizanou
The Government seeks to bring the parties together for the tax reform, the discussion of which began yesterday in Parliament in an atmosphere of consensus. The Government insists on the implementation of the reform in early 2026, even though the Parliament does not set a strict timetable for making its own decision.
Finance Minister Makis Keravnos, leaving behind the statement he made last summer that he will not hesitate to withdraw the bills in case the parties change the philosophy of the reform, yesterday presented himself to the parliamentary committee on Finance ready to accept some changes. Differentiations, however, that will not cause derailment in public finances.
As a first step, the minister is discussing expanding the number of beneficiaries who will benefit from tax deductions for children, students, mortgages, etc. Responding to the murmurs and reactions that with the ceiling of €80,000 many taxpayers are excluded as eligible annual income, he announced that the annual income which will be taken into account for taxpayers to receive the additional tax deductions to be increased to €90,000 is not negative.
This will increase the number of beneficiaries, while also somewhat satisfying the parties. Therefore, in addition to the tax-free allowance that increases to €20,500 and the differentiation of the tax scales, those natural persons who are at the limit of €90 thousand. They will benefit from a discount of €1000 for each child, student (for single-family families it will be €2,000], €1500 for the interest on a performing loan for the purchase of a main residence or for the rental of a main residence and €1000 for the energy upgrade of the main residence or for the concern of a new electric vehicle. It is recalled that for large families, the annual family income that will be taken into account for tax deductions has been set at €100,000.
The reductions that will occur
According to data presented to the Parliament, from the increase in the tax-free allowance and the change in tax scales, the reduction of the tax on natural persons that will occur with the tax reform is as follows:
-The taxable income of €25,000. Today it is taxed at €1,100, but with the reform it will be reduced by €200.
-For an annual income of €35,000 is currently taxed at €3,450 while with the reform it will be reduced by €300
-For taxable income €50,000 the tax reduction will be €485
-For an income of €70,000 there will be a reduction of €985
Besides, a family without children, with an annual income of €56,184, with the reform will have a tax reduction of 63%, paying a tax of €796. For a family with the same income criteria with one child, the tax reduction will be 72%, paying €596, while in the case of three children the tax reduction of 82%, i.e. paying €396.
In the event of a further increase in the tax-free €1000, according to the minister, the fiscal impact is estimated at €30 million.
The measures for businesses
In relation to businesses, the following are proposed:
– The deemed distribution of dividend on profits acquired after 1/1/2026 is abolished.
- The rate of imposition of the special defense contribution on the actual dividend distribution is reduced from 17% to 5%, for profits that will be generated after 1/1/2026.
- The imposition of an extraordinary defense levy on rental income is abolished.
-The corporate tax rate is increased from 12.5% to 15%. - A special way of taxing profits from the disposal of crypto-assets, where a horizontal rate of 8% is proposed.
-The loss carry-over period is extended from 5 years to 7 years. - The 120% super-deduction for research and development expenses of an intangible asset is extended until 2030.
- The maximum limit of deductible entertainment expenses for tax purposes is increased to €30,000 from €17,086.
-A special way of taxation is introduced with a fixed rate of 8% on stock options on the basis of an approved employer's benefit plan. - Gratuitous payments paid by an employer in a lump sum are subject to income tax at a horizontal rate of 20% and a tax-free amount of €200,000 is granted.
Measures against tax evasion
The minister also referred to the measures against tax evasion, which concern the strengthening of the powers of the Tax Department to collect taxes due. At the same time, administrative fines and financial charges are increasing. Among the measures, rents over €500 will be paid electronically or through banks. Businesses will also be sealed for tax debts, after there have been three warnings and a court order. It will also be mandatory to submit a tax return for all persons aged 25 and over.
At the same time, a company that has tax obligations, any change or deletion of officials will not be valid and the submission of a declaration by cooperatives. The Commissioner of Taxation will be able to request data for eight years and request data on taxpayers' deposits in banks in Cyprus. The fiscal cost of the reform after the final determination of the bill is neutral with a small surplus of €18 million.
Fog for impact
The president of the Fiscal Council sounded the alarm about changes that will be brought about by the Parliament. According to Michalis Persianis, in case of changes, there should be an impact analysis, while he spoke of "fog" for the analysis made by the Center for Economic Research. The response of the NOC was immediate, with its representative stressing that there is no fog.
The positions of organizations are low-key
The reaction of the stakeholders was also different. On behalf of ICPAC, it was said that during the consultations there was an improvement in the bills. On behalf of the Cyprus Bar Association, it was stated that the bills amend the tax system piecemeal, stressing that an opportunity to strengthen the country's competitiveness was lost. The need for simplification of the system was also emphasized.
Banks expressed their concern about the increase in administrative costs due to complexity.
PASYDY, SEK and PEO argue that the reform is unbalanced in favour of businesses, calling for changes, while CCCI and OEB noted that the competitiveness of businesses should be maintained. The association of large families also asked for changes, while agricultural organizations expressed their surprise at the taxation of tax incentives given to farmers.
Finally, a representative of the State Aid Control Office stated that there are two issues that refer to state aid which concern the extraordinary contribution for defense to semi-state organizations that are businesses and the capital discounts to farmers and livestock breeders.
A representative of the Legal Service noted that during the legislative technical review, innovative provisions were identified. During the session, the parties that will do so on the 17th of the month, when the bills will be put under their microscope again, did not take a position. After the session, in their statements they expressed their dissatisfaction with the tight timetables they are called upon to consider the reform.
