Filenews 7 November 2025 - by Eleftheria Paizanou
A surplus of €112 million. was initially calculated by the Centre for Economic Research (KOE) of the University of Cyprus as a result of the tax reform as proposed, however, later, as the bills were formulated, it appears that with the tax exemptions and tax deductions as well as the imposition of additional taxes, the state will come more or less "on an equal footing".
It is worth noting that some of the measures proposed by the Economic Research Centre (KOE) of the University of Cyprus were left out of the reform, while some others that were added along the way did not calculate their economic weight.
Therefore, the fiscal impact of the proposed reform each year is not fully clarified, pending the changes that will be brought about by the Parliament during the discussion of the bills, which begins in the afternoon.
According to the University's study, which reviews the final Report on the Cyprus Tax Reform Project, the total fiscal cost to the state from the tax reform is estimated at €432 million, due to the increase in the tax-free allowance and the general changes in income tax (fiscal impact of €150 million), as well as from the reduction for the special contribution for defence. As the JIT states, the fiscal cost is fully offset and with additional revenues of €544 million, which leads to a net surplus of €112 million, without, we repeat, calculating changes in revenues – expenses with the changes made during the consultation on the reform.
The sources of receipts
According to the University's findings, the main source of revenue for the state will be the increase in corporate tax from 12.5% to 15%, through which it is estimated that an amount of €240 million will be collected.
In addition, it is estimated that there will be revenues of €130 million. from the taxation of the deemed distribution of dividends of 17% on 70% of profits, which will be abolished in the future. At the same time, it is estimated that revenues of €60 million will be generated. from the increase in consumption, with the state collecting VAT and other taxes.
In the total calculation of revenues, the JIT has also calculated an amount of €54 million from the reinstatement of the property tax, the corporate tax of €50 million as well as €10 million from the contribution for non-residents to the Republic.
Claims
The Ministry of Finance left out the imposition of property tax and the imposition of the corporate tax, which leads to a loss of income of €104 million, with total revenues reaching €440 million.
In addition, what is surprising, according to economists, is that the KOE has also counted the €130 million. from the deemed distribution, which will be abolished at a later stage. Based on the bill, the deemed distribution of dividends (17% of 70% of profits) is abolished from 1/1/26.
Profits for tax years up to 2025 will be subject to an accountable dividend distribution. Also, the actual dividends distributed from 1/1/2026 will be taxed at a rate of 5%.
Another point that economists indicate should be clarified is the issue of the incomes of €240 million. that will come from the increase in corporate tax. The Ministry of Finance should clarify whether any economic impact study was carried out in the event of a number of businesses leaving Cyprus to other competing countries.
During the public consultation, lawyers and accountants had warned of the withdrawal of companies due to the increase in the relevant taxation. At the same time, another assumption of the JIT for which there are some reservations, is the total amount of €60 million. that will come from the increase in consumption.
The reform is neutral
However, the University of Cyprus argues that tax reform combines fiscal prudence with fairness, competitiveness, as well as social and environmental responsibility.
At the same time, it establishes a balanced, growth-enhancing and sustainable fiscal framework. As the University points out, the reform expands the tax base, reduces distortions in work, and strengthens efforts to improve tax compliance through digitalization. It indicates that it is fiscally neutral to slightly positive, while at the same time enhancing growth, transparency and long-term fiscal sustainability.
In fact, it concludes that with the projected net fiscal surplus, strong international competitiveness and a commitment to limit the shadow economy through digital compliance tools, the reform positions Cyprus as a transparent and resilient European economy.
