Cyprus businesses are currently navigating a critical period as they scramble to implement tax reform changes affecting payroll systems ahead of the month-end salary payments. With the deadline approaching, company accounting departments are working tirelessly to adjust to new regulations that will impact both employers and employees.
- Further adjustments are scheduled for 1 July 2026, when salaries will increase by an additional 10% of the annual index, ultimately raising the total adjustment to 90%.
Upcoming Changes and Their Implications
The newly approved tax reform introduces a range of adjustments that require immediate attention. Companies must revise payroll processes to accommodate deductions, tax-free allowances, and new declaration forms by the end of January, when the next salary payments are due. This has created a sense of urgency among accounting teams, as clarity on several issues remains elusive.
Efforts to Clarify Tax Reform Details
Recognising the challenges businesses face, the Cyprus Employers and Industrialists Federation (OEB) is stepping in to provide support. They are organising a two-day briefing in collaboration with the Tax Commissioner’s office, aimed at helping member businesses understand the upcoming changes. OEB Director General Michalis Antoniou described the situation as a “race against time” to ensure that employers are informed and able to implement the necessary tax changes correctly.
Webinars to Aid Payroll Management
In a bid to support companies further, the OEB and the Tax Commissioner’s office are hosting webinars titled “Tax Changes in Individual Taxation.” These sessions are designed specifically for payroll management staff and will cover the recent changes affecting individual taxation, including the new tax deduction declaration form T.F. 59, which will be applicable for the 2026 tax year.
The webinars are set to take place on two separate dates via Zoom: Thursday, 15 January 2026, from 09:00 to 11:00, and Friday, 16 January 2026, from 09:00 to 11:00. Each company can send more than one representative to ensure comprehensive participation. The OEB aims to provide identical content on both days to accommodate the needs of its members.
Future Briefings on Broader Tax Reforms
Aside from the immediate payroll adjustments, the OEB plans to schedule additional briefing presentations later to cover other aspects of the tax reform that will affect business activities. This proactive approach is essential as companies grapple with the implications of the new tax landscape.
Adjustments to Cost-of-Living Allowance
In conjunction with the tax reform, the OEB and the Cyprus Chamber of Commerce and Industry (KEVE) have shared updates regarding the cost-of-living adjustment (COLA) following a recent Finance Ministry circular. The Consumer Price Index (CPI), which excludes consumption taxes, saw a modest increase of 0.13% for 2025. According to the Permanent Agreement established on 13 November 2025, salaries are set to adjust on 1 January 2026 by 80% of the annual index increase, contingent on positive growth in the previous year.
Further adjustments are scheduled for 1 July 2026, when salaries will increase by an additional 10% of the annual index, ultimately raising the total adjustment to 90%.
COLA Increases Explained
As a result of these stipulations, the COLA is poised to rise by 0.10% on total salaries effective from 1 January 2026, shifting from 12.56% to 12.67% on basic salaries. In July 2026, these figures will reflect an additional 0.12% increase, resulting in 12.70% on basic salaries.
The OEB has provided illustrative examples to clarify the financial impact of these changes. For instance, an employee with a total salary of €1,500 as of 31 December 2025 will see their COLA allowance increase by €1.50 during the first half of 2026, rising to €1.80 in July. For those on a basic salary of €1,500 on 1 January 2026, the adjustment of 12.67% translates to an increase of €190.05 for the first six months, escalating to €190.50 for the next twelve months.
Looking Ahead: The Need for Adaptation
As the deadline for payroll adjustments approaches, the pressure mounts on businesses across Cyprus. The need for clear communication and comprehensive understanding of the new tax reforms cannot be overstated. With the OEB and Tax Commissioner’s office actively providing resources and support, companies are doing their best to ensure compliance and smooth transitions in their payroll systems.
Despite the challenges, these reforms present an opportunity for businesses to reassess their payroll practices and financial strategies. As Cyprus moves forward, the successful implementation of these changes will be crucial for maintaining workforce morale and operational efficiency.
