Filenews 9 November 2025 - by Eleftheria Paizanou
Tax deductions amounting to €151 million per year will be received by households with the tax reform, the debate of which began last Friday in Parliament. Provided, of course, that it will be approved as it is, without any changes in the specific provisions by the parties.
According to the study by the Center for Economic Research of the University of Cyprus, which was forwarded to the Parliament with the reform, the tax burden for households and middle-class families is reduced and justice is promoted. Specifically, with the new tax exemptions for children, housing and green investments, according to the KOE, social justice is strengthened, while mainly middle-income households will take a breather.
As the JIT states in its study, on which the Ministry of Finance relied to prepare the relevant bills, the proposed reform of the personal income tax is a decisive step in the modernization of the fiscal framework of Cyprus.
By adjusting tax brackets, targeted deductions, and providing incentives such as home ownership and green investments, the reform aims to enhance fairness, efficiency, and financial resilience.
The measures address socio-economic challenges such as housing, demographics, environmental sustainability and labour market participation – especially for women.
The proposed measures
Based on the bills before the Parliament, it is planned to increase the tax-free allowance to €20,500 and expand the tax scales. From €20,501 to €30,000, income will be taxed at 20%.
Incomes from €30,001 – €40,000 will be taxed at 25%. Incomes from €40,001 to €80,000 will be taxed at 30% and incomes over €80,000 will be taxed at 35%. It is also provided for the granting of additional tax exemptions on the basis of the composition of the family. Households with an annual gross income of €80,000 are covered, while for large families the income should be up to €100,000.
In detail, the tax deductions that will be given are as follows:
-€1,000 discount per year for each spouse/cohabitant/single person for each dependent child and student. Single-parent families will receive a discount of €2,000/year.
-€1,500 discount per year for each spouse/cohabitant/single for interest on a performing loan for the purchase of a main residence or for the expense of rent of a main residence in the Republic.
-€1,000 discount per year for each spouse/cohabitant/single person for capital expenditure for energy upgrade of the main residence and for electric vehicles. The exemption will be carried over to the next 4 years.
The data used
In preparing the study, the JIT took into account European statistics on income and living conditions, which provide harmonised data on income, poverty and living conditions in all EU Member States. He also used other econometric models.
The four changes that will occur in the taxation of household incomes, the fiscal impact on the state will be €151 million.
In detail, the economic impact on the state will be as follows:
– The readjustment of tax brackets and rates, including the increase of the tax-free limit to €20,500 as well as the transfer of the maximum rate of 35% to incomes over €80,000, leads to a loss of revenue of €66 million.
– -The granting of additional tax deductions of €1,000 per child or student for households with an income of up to €80,000, lead to a reduction of €26 million.
Based on the scenarios of the University of Cyprus, the loss of state revenue from large families is greater.
Specifically, with family income ceilings of €100,000 for families with 4 or more dependent children/students, maintaining the limit of €80,000 for the rest, the cost increases to €28 million.
At the same time, with income ceilings of €100,000 for families with 3 or 4 children/students and €160,000 for families with 5 or more, the cost increases to €29 million. In the event that for each child/student which increases to €2,000, the cost for the state rises to €44 million.
In parallel with the granting of a discount of up to €1,500 per spouse for mortgage or rent payments for a primary residence, they lead to a loss of €30 million. In the meantime, from the granting of discounts to households up to €1,000 for residential green upgrades (e.g. photovoltaics, electric vehicles) lead to a reduction of €29 million.
At the same time, single-parent households are treated in the most favourable way, i.e. as two-parent households, receiving double the amount of discount (€2,000 per child/student), while the income limit is set at €40,000.
The results
In the study of the KOE, special scenarios were also examined with the differentiation of the amount of the total income that will be taken into account but also for the tax-free.
As the study of the University of Cyprus showed, if in the tax reform the upper limit of the tax scale remains at €60,000 instead of €80,000 proposed, then the fiscal cost is reduced to €56 million.
At the same time, in the event that the tax-free allowance increases by €5,000 and goes to €24,500 from €19,500 which is the existing tax system, however the tax scales are formed as proposed in the bills, then the fiscal cost for the state will be €187 million.
Significant tax reduction
From the analysis of the various scenarios carried out by the JIT, it has come to the conclusion that the proposed tax reform significantly reduces the tax obligations of almost all families.
As he points out, the greatest benefits arise for families with children, which will reflect a more family tax system. He also indicates that for families with two employees and two children, the reduction is particularly large, almost eliminating the income tax liability.
Specifically, a comparison was made between the existing tax system and the one proposed for families with two employees and a total gross annual income of €56,184. and for families with one employee and a gross annual income of €28,356. With the proposed tax reform, for families with two employees with the discounts proposed, the burden is reduced as follows.
In the case where in a family in which they both work but have no children, the tax obligations will be €422. In the event that the household will have one dependent, the tax liability is reduced to €222 and €22 for households with two dependent children. In addition, for households with one employee, the corresponding tax obligations are reduced to €796, €596 and €396.
