Cyprus: Tax reform proposal submitted to Parliament

The Council of Ministers approved the government's tax reform proposal, which has been submitted to Parliament for discussion and voting.

Social dimension and tax relief measures

The tax-free threshold increases from €19,500 to €20,500, and tax credits are provided for family incomes below €80,000 (or €100,000 for large families).

New tax measures for businesses

• The deemed distribution of dividends for profits from January 1, 2026, is repealed.
• The special defence contribution on actual dividend distribution is reduced from 17% to 5%.
• The contribution on rental income is repealed.
• Corporate tax increases from 12.5% to 15%.
• An 8% tax rate is established for gains from the disposal of cryptoassets.
• Loss carry-forward period is extended from five to seven years.

Changes following stakeholder consultations

Following consultations with social partners, significant improvements were made to the bills:

• The tax-free amount for voluntary retirement increases from €20,000 to €200,000.
• No property tax or business levy will be introduced at this stage.
• For non-dom companies, the levy is reduced from €250,000 to €50,000 for five years, in order to maintain incentives for foreign investment.

Tackling tax evasion and new audit mechanism

The reform also introduces mechanisms to combat tax evasion, with a more effective and fair process.

Businesses found with irregularities will receive three warnings, and if the issue recurs within 30 days, they may appeal to court, which will decide whether to impose a temporary closure or other sanctions.

Timeline and political support

The Minister of Finance called on Parliament to approve the reform by the end of 2025 so that it can become effective on January 1, 2026.

The finalization of the above proposals is expected to take place upon their approval by the House of Representatives and their publication in the official gazette.

Read an October 2025 report prepared by the KPMG member firm in Cyprus