Filenews 21 December 2025 - by Eleftheria Paizanou
2026 will set foot with a new tax framework, as tomorrow the Plenary Session of the Parliament is expected to give the green light to the bills for tax reform. This is a landmark decision of the Parliament, as the reform comes 23 years after the last change in the country's tax regime and for which there are estimates that it will contribute to strengthening the competitiveness of the Cypriot economy, increasing state revenues, supporting the middle class and families with children and students, as well as strengthening efforts to tackle tax evasion.
The Ministry of Finance relied on the study of the Centre for Economic Research (KOE) of the University of Cyprus to prepare the bills. However, some of the proposals of the KOE were left out of bills, such as the property tax and the graduated tax on companies, which AKEL reflected in law proposals, but will not be approved tomorrow since they do not obtain the required majority.
"F" lists the main changes that will be made to the tax reform, provided that they will be approved tomorrow by the Plenary Session of the Parliament.
Natural persons
-Increase of the tax-free allowance to €22,000 and granting of additional deductions depending on the number of children and income.
-In order to become eligible for additional tax deductions, the annual income of a family with one or two children must be €100,000, for three or four children it increases to €150,000 and for large families with more than five children, this rises to €200,000.
-Tax deductions will be staggered for children and students (up to 23 years old for women and up to 24 years old for men). For one child and student the discount will be €1000, for the second child and student the discount will rise to €1250 and from the third and above the discount will be €1500. For performing loan interest and rents, the tax deduction will be €2000 and for green investments in homes for the purchase of an electric vehicle, the discount will be €1000. Granting of a discount of up to €500 on taxable income for home insurance premiums against the risk of natural disasters. (They are not included in the 1/5 exemptions from income).
-Adoption of new tax scales. For incomes from €22,001 to €32,000 the tax will be 20%. Incomes from €32,001 to €42,000 will be taxed at 25%. Annual earnings from €42,001 to €72,000 the tax rate will be 30%. Income over €72,001 will be subject to 35% taxation.
For businesses, especially Cypriot ones, the following will apply:
-The deemed distribution of dividend on profits acquired after 1/1/2026 is abolished.
– The rate of imposition of the extraordinary defense levy 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 contribution on rental income is abolished.
For all local and foreign businesses, the following will apply:
-Increase of corporate tax to 15% from 12.5% today.
-Special way of taxing profits from the disposal of crypto-assets, 8%, for profits within tax profit
-The loss carry-over period is extended from 5 years to 7 years,
– The 120% super-deduction for research and development expenses of intangible assets is extended until 2030.
-The maximum limit of entertainment expenses deductible for tax purposes is increased to €30,000, from €17,086,
-A special way of taxation 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 in cases where gratuitous allowances are granted due to termination of employment.
Measures against tax evasion
-Mandatory payment of rent over €500 via bank transfer or electronic payment.
-Mandatory submission of a tax return by all natural persons from the age of 25.
-The Tax Commissioner will be able to request the submission of a statement of assets and liabilities covering a period of six years and the mandatory keeping of data supporting the tax return for six years.
-The Tax Commissioner will be able to request tax bank information, e.g. deposits, from banks in Cyprus as well.
-Sealing of businesses for non-submission of tax returns, for non-issuance of legal receipts and for tax debts. The taxpayer will have the right to challenge the decision in court.
-Blocking of company shares for tax debts over €100,000.
