Filenews 22 January 2026
The Tax Reform came into force and citizens, families and businesses are starting to see in practice the immediate benefit of reducing the tax burden and correspondingly increasing net disposable income.
According to the government, a fairer, modern and more competitive tax system is being implemented, simpler and more efficient, adapted to the real needs of society and the economy, focusing on people, the middle class, the family and healthy entrepreneurship.
At the core of the reform is the increase of the tax-free income to €22,000 for everyone, regardless of marital status.
Tax rates are set more fairly and proportionally, specifically at 20% for incomes from €22,001 to €32,000, 25% from €32,001 to €42,000, 30% from €42,001 to €72,000 and 35% for incomes over €72,000, reducing the tax burden for the middle class.
The changes are clearly reflected through illustrative examples, which show how the Tax Reform translates in practice into lower tax and increased net income for different types of households.
Household with two children, mortgage and photovoltaics
A household with two working parents, two children or students up to 24 years old, a recent mortgage loan of €200,000 and the installation of photovoltaics, benefits from a combination of tax exemptions that significantly reduce the total tax.
Example:
| Taxable income of the 1st partner (annual salary after deductions) | €30.000 |
| Taxable income of the 2nd partner (annual salary after deductions) | €30.000 |
| Household tax exemption for home insurance (up to €500) | €500 |
| Tax exemption for dependent children (€1,000 + €1,250) | €2.250 |
| Tax exemption for dependent children (€1,000 + €1,250) | €2.250 |
| Tax exemption for mortgage interest (up to €2,000) | €2.000 |
| Tax exemption for mortgage interest (up to €2,000) | €2.000 |
| Tax exemption for the installation of a PV system (up to €1,000) | €1.000 |
| Tax exemption for the installation of a PV system (up to €1,000) | €1.000 |
| Total amount of household deductions | €11.000 |
| Total tax before the reform | €4.400 |
| Total tax after the reform | €1.000 |
| Tax reduction – increase in disposable household income | €3.400 |
Single-parent family with two children, rent and electric vehicle
The reform treats single-parent families in the most favourable scenario. A parent with two children, a rent of €7,000 per year and a recent purchase of an electric vehicle, sees a clear benefit.
Example:
| Taxable income of the parent (salary after deductions and previous approved tax exemptions) | €35.000 |
| Parent tax exemption for dependent children (double) | €4.500 |
| Parent tax exemption for rent of a primary residence (up to €2,000) | €2.000 |
| Parent tax exemption for the purchase of an electric vehicle (up to €1,000) | €1.000 |
| Total amount of household deductions | €7.500 |
| Total tax before the reform | €3.450 |
| Total tax after the reform | €1.100 |
| Tax reduction – increase in disposable household income | €2.350 |
Single person with rent and electric vehicle
The reform also covers single people. A single person with a rent of €6,000 and a recent purchase of an electric vehicle benefits directly.
Example:
| Taxable income (salary after deductions and previous approved tax exemptions) | €28.000 |
| Tax exemption for the rent of the first residence (up to €2,000) | €2.000 |
| Tax exemption for the purchase of an electric vehicle (up to €1,000) | €1.000 |
| Total amount of discounts | €3.000 |
| Total tax before the reform | €1.700 |
| Total tax after the reform | €600 |
| Tax reduction – increase in disposable income | €1.100 |
Example:
| Taxable income of the 1st partner (annual salary after deductions) | €70.000 |
| Taxable income of the 2nd partner (annual salary after deductions) | €55.000 |
| Household tax exemption for home insurance (up to €500) | €500 |
| Tax exemption of the 1st synod for dependent children (€1,000 for the 1st, €1,250 for the 2nd, €1,500 for each of the following) | €6.750 |
| Tax exemption of the 2nd synod for dependent children (€1,000 for the 1st, €1,250 for the 2nd, €1,500 for each of the following ones) | €6.750 |
| Tax exemption for mortgage interest (up to €2,000) | €1.200 |
| Tax exemption for mortgage interest (up to €2,000) | €1.200 |
| Tax exemption of the 1st council for the energy upgrade of a residence (up to €1,000) | €1.000 |
| Tax exemption of the 2nd council for the energy upgrade of a residence (up to €1,000) | €1.000 |
| Total amount of household deductions | €18.400 |
| Total tax before the reform | €23.770 |
| Total tax after the reform | €17.777 |
| Tax reduction – increase in disposable household income | €5.993 |
The Tax Reform that proceeded and was voted after two decades has a clear goal to return the benefit directly to the citizen, to strengthen social cohesion and to create solid foundations for sustainable and competitive development.
With the new digital calculation tool, citizens can directly see their personal benefit from the Tax Reform https://www.gov.cy/taxreform/.
