Income tax withholding from employee salaries began on 1 January under a new tax regime approved by parliament last month as part of a tax reform that increases the tax-free income threshold to €22,000 and grants increased tax deductions based on family composition and income.
However, tax returns reflecting the new system will not be submitted until 2027 for the tax year 2026. Tax returns are usually submitted between April and 31 July through the Unified Electronic System (Tax For All).
This year, taxpayers will submit returns for the 2025 tax year using the same criteria as for 2024, with the tax-free threshold at €19,500 and existing tax brackets. The only difference will be that returns for 2025 will be submitted through Tax For All instead of taxisnet.
In 2027, taxpayers with gross income above €22,000 will be required to file returns for the 2026 tax year. They must be Cyprus tax residents for a period exceeding 183 days. Filing will be mandatory for all taxpayers aged between 25 and 71, though the Cabinet can exempt specific categories by decree.
Beyond raising the tax-free threshold to €22,000 and changing tax rates, the reform introduces significant new personal deductions targeting natural persons who are Cyprus tax residents based on family status and income criteria. Deductions will be granted based on the number of dependent children, students, rental expenses, interest on serviced housing loans for main residences, energy upgrades of main residences and purchases of electric vehicles.
The new personal deductions will be declared on form T.F.59, which covers the claim for tax deductions and calculation of withheld tax and contributions by employers.
Families with incomes up to €100,000 (without children or with one to two children), up to €150,000 (three to four children) and up to €200,000 (five or more children) will benefit from additional deductions for children, students, housing loan interest, rent and green investments. For single persons, income must not exceed €40,000.
The deduction for the first dependent child or student will be €1,000, for the second dependent child €1,250, and for the third and each additional dependent child €1,500. Deductions for interest and rent will be €2,000, and for green investments €1,000.
On form T.F.59, taxpayers must declare the final deduction amount per category without reference to income criteria or number of children. For example, for two dependent children, the total child deduction declared would be €2,250 (€1,000 for the first and €1,250 for the second dependent child).
The new personal deductions do not reduce the taxable income on which the maximum one-fifth deduction is calculated for insurance premiums, GESY contributions and fund contributions, and are granted additionally.
A basic prerequisite for granting the new personal deductions is that spouses or civil partners, or partners without a civil partnership agreement but with common children, must consent to disclosure of their tax information to each other to confirm that total family income does not exceed the income criteria.
Consent will be given in a special field in each spouse or partner’s tax return. The tax returns of spouses, civil partners or partners without a civil partnership agreement but with common children, or of single persons, must be submitted within prescribed deadlines.
For calculating family income, the gross income of spouses or partners from employment, pensions, rent, dividends, alimony, and state allowances and grants will be considered. Excluded from the calculation are children’s income (students), child allowances, student grants and care, scholarships, and allowances for persons with disabilities and chronic conditions. If the taxpayer lives with another person with whom they have common children, that person’s gross income is also considered.
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