The long-awaited tax reform in Cyprus marks a significant turning point for the nation’s business and investment environment. The House of Representatives passed the reform, which has been nearly 23 years in the making, a move welcomed by the Cyprus Institute of Certified Public Accountants (Selk).
Details of the Tax Reform Initiative
Scheduled to take effect on January 1, 2026, the reform introduces a modernised framework designed to enhance the effectiveness of the tax system. Selk described the changes as “a significant institutional milestone for the tax system of the Republic of Cyprus.” This overhaul comes after an extended period without a comprehensive review, aiming to adapt to evolving economic conditions and global standards.
Key Changes and Implications
Among the major modifications, the reform includes the abolition of deemed distribution of dividends, a reduction in withholding tax on actual dividend distributions from 17% to 5%, and an increase in exemptions for capital gains tax. Additionally, corporate tax will rise from 12.5% to 15%. These changes are anticipated to enhance Cyprus’ appeal to international investors.
Foreign Investment Trends
In 2024, Cyprus saw a remarkable total of €365.07 billion in foreign direct investment (FDI), with Russian investments still leading despite a notable decline. According to the Central Bank of Cyprus, Russian investments amounted to €83.46 billion, constituting 23% of total FDI. Investments from EU member states represented about 20% of the total, with Luxembourg contributing the largest share at €32.1 billion.
Supporting a Competitive Environment
Invest Cyprus praised the tax reform as a crucial development for maintaining and enhancing the country’s investment climate. The organisation noted that the new tax framework reinforces entrepreneurship and provides investors with the needed predictability. The reform is viewed as a catalyst for nurturing a competitive business landscape in Cyprus.
Reactions from Business Associations
TechIsland, representing the fast-growing tech sector in Cyprus, expressed its support for the tax reform. The association highlighted the importance of the dialogue that preceded the legislative process, noting that it had actively contributed its views to ensure the country remains competitive. With the legislative phase completed, TechIsland emphasised the need for a clear implementation strategy to maximise the new provisions’ effectiveness.
Labour Market Developments
In a separate but related development, the Cyprus Bankers Employers Association and the Cyprus Union of Bank Employees recently signed a new collective labour agreement, covering the period from 2023 to 2027. This agreement was signed with the aim of fostering stability and positive relations within the financial sector. Labour Minister Marinos Mousioutas attended the signing, affirming the agreement’s role in enhancing cooperation between banks and employees.
Minimum Wage Adjustments
In a move that has sparked diverse reactions, the Cypriot government has decided to raise the national minimum wage to €1,088 per month. This decision was made after careful consideration of economic indicators such as inflation and employment trends. The increase, set to take effect in January, will benefit around 50,000 workers, with the minimum wage for employees within their first six months of work rising from €900 to €979.
Balancing Growth and Worker Support
Labour Minister Mousioutas explained that the adjustment aims to strengthen the purchasing power of low-paid workers while also maintaining competitiveness within the economy. The government’s efforts reflect a commitment to ensuring fair compensation amidst a changing economic landscape.
Advancements in Gender Equality Initiatives
As part of broader social reforms, the National Strategy for Gender Equality 2024-2026 is underway, with approximately 40 of its planned 60 actions already completed or in progress. Gender Equality Commissioner Josie Christodoulou reported on the strategy’s implementation, noting the appointment of equality officers across government ministries to promote equality issues effectively.
Educational and Awareness Campaigns
The strategy aims to dismantle stereotypes through education and information campaigns, guiding children’s career choices based on skills rather than gender norms. Christodoulou expressed optimism about the strategy’s holistic approach, which seeks to integrate gender equality into various sectors of government policy.
Regulatory Updates for Crypto Sector
The Cyprus Securities and Exchange Commission (CySEC) issued a reminder to Crypto-Asset Service Providers (CASPs) about the necessity for authorisation under the Markets in Crypto-Assets Regulation (MiCA) by February 27, 2026. This requirement ensures legal compliance for crypto businesses operating within the country.
Transition Period for Existing Firms
Firms currently registered under the national framework can continue operations during the application process until a decision is made. However, those failing to apply by the deadline will be required to submit a wind-down plan, marking a significant shift for the industry.
Community Engagement through Volunteering
Konstantina Logotheti, head of marketing at PwC Cyprus, recently highlighted the importance of volunteering in fostering community spirit. Her involvement in the Junior Achievement programme reflects a broader commitment to instilling values of giving and community service among young people. Logotheti advocates for a culture of volunteering that encourages individuals to contribute positively to society.
Encouraging a Culture of Giving
Logotheti’s experiences in classrooms demonstrate how acts of giving can create a sense of belonging and purpose. By promoting volunteering, she aims to instil a sense of responsibility and community engagement among the younger generation.
