The parliament today approved the first comprehensive overhaul of the Cyprus tax system since 2002, marking a pivot toward a more progressive fiscal framework designed to bolster the middle class.
The centrepiece of the reform is a significant increase in the tax-free threshold, which rises to €22,000. Under the newly approved progressive scale, the government aims to shield low-income earners while introducing a 35% top-tier rate for those earning over €72,001. Families are the primary beneficiaries of the “horizontal” adjustments, with new tiered deductions of up to €1,500 per child, alongside significant relief for mortgage interest and “green” home upgrades.
The legislation raises the corporate tax rate from 12.5% to 15%. However, in a trade-off, lawmakers voted to abolish deemed dividend distributions and slash the defence contribution on actual dividends from 17% to just 5% starting in 2026. This move is specifically intended to encourage reinvestment by local businesses and attractive holding companies.
The reform also signals the end of “grey market” transactions in the real estate sector. The Tax Department now mandates that any rent payment exceeding €500 must be processed electronically. Furthermore, the Tax Commissioner has been granted unprecedented enforcement powers, including the ability to seal non-compliant businesses and freeze company shares for debts exceeding €100,000.
In a final act of simplification, Parliament also voted to abolish stamp duties and extended the business loss carry-forward period to seven years, providing a longer runway for startups and recovering firms. A separate 8% flat tax will now apply to profits from the burgeoning crypto-asset and stock option markets, positioning Cyprus as a regulated hub for digital finance.
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