The revamped Cyprus tax system officially came into force on January 1, 2026, marking a significant change for both businesses and individuals. This overhaul follows the approval of a comprehensive tax reform package by the Cypriot parliament on December 22, 2025.
- This comprehensive overhaul of the Cyprus tax system is poised to create a more competitive economic environment, enhance investor confidence, and ultimately foster growth within the Cypriot economy.
Cyprus tax: Parliament Approves Reform Package
The House plenary voted in favour of five out of six bills presented by the government, which were subsequently amended during discussions at the Parliamentary Finance and Budget Committee. The legislation was published in the official gazette shortly thereafter, as confirmed by the Employers and Industrialists Federation (Oev).
Oev’s Role in Shaping Reforms
Oev has been instrumental in shaping the final amendments to the tax framework, participating actively in both public consultations and specific article discussions within the committee. The federation’s involvement was driven by a commitment to enhance the Cypriot economy through effective tax reform, bolster business competitiveness, and maintain the country’s attractiveness to foreign investors.
Key Changes to Corporate Taxation
One of the most notable alterations within the new tax system is the increase in corporate income tax, which has risen from 12.5 per cent to 15 per cent. This move aims to align Cyprus with broader European standards while ensuring fiscal sustainability.
Adjustments to Dividend Taxation
In a bid to stimulate capital distribution among businesses, the withholding tax on actual dividend distributions has been significantly reduced from 17 per cent to 5 per cent. Furthermore, the previous practice of deemed dividend distribution has been entirely abolished, which is expected to encourage companies to distribute profits more freely.
Elimination of Stamp Laws
The reform also eliminates all existing stamp laws, simplifying administrative processes for businesses and individuals alike. This move is anticipated to further enhance the ease of doing business in Cyprus.
Extended Liability for Company Directors
Another critical provision in the reform package extends the liability of company directors. They will now be held accountable for financial obligations covering the entire period of their office, including any time post-resignation, which aims to promote responsible governance within companies.
Changes to Tax on Land and Investments
In terms of property taxation, the concession of land plots for subdivision purposes will now be recognised as consideration for tax purposes. This change is designed to ensure that land development contributes appropriately to the tax base.
Special Defence Contribution Adjustments
The reform package also introduces a reduction in the special defence contribution on interest income derived from bonds issued by companies listed on the ‘New Market’ of the Cyprus Stock Exchange. This rate is lowered from 17 per cent to 3 per cent, aimed at attracting more investment into the Cypriot market.
Personal Taxation Overhaul
On the personal taxation front, the new framework mandates that all Cyprus tax residents over the age of 25 submit tax returns, regardless of whether they incur a tax liability. This requirement is aimed at increasing compliance and improving tax collection.
Revised Income Tax Bands
The income tax bands for individuals have been restructured. Income up to €22,000 remains tax-free, while new rates are applied for higher income brackets: 20 per cent for income between €22,001 and €32,000, 25 per cent for €32,001 to €42,000, 30 per cent for €42,001 to €72,000, and 35 per cent for income exceeding €72,001.
Additional Deductions and Support Measures
The reform introduces additional deductions that cover a variety of expenses, including those related to children, home insurance, and mortgage interest. These measures are designed to provide financial relief to taxpayers and support family units.
Ongoing Monitoring by Oev
As the implementation of these reforms unfolds, Oev has pledged to monitor the situation closely. The federation aims to keep its members informed about any clarifications, regulatory acts, or interpretative circulars that may be issued by the relevant authorities.
This comprehensive overhaul of the Cyprus tax system is poised to create a more competitive economic environment, enhance investor confidence, and ultimately foster growth within the Cypriot economy.
