Taxpayers will qualify for additional tax deductions covering children, students, green initiatives and mortgages under strict income conditions in the proposed tax reform, according to the legislative package submitted to parliament.
The new deductions will take into account annual household income of spouses or cohabitating partners, requiring both to file tax returns for the previous year before qualifying. The reform legislation adds provisions stating that compliance with timely tax return submission is mandatory, with no deductions granted in cases of non-compliance.
The proposed tax relief for individuals totals €151 million and will be granted based on household composition. The measures include raising the tax-free income threshold from €19,500 to €20,500 across the board, plus additional deductions for households where combined spousal or partner income falls below €80,000.
The Finance Ministry is discussing raising this income ceiling to €90,000, which would expand the number of eligible taxpayers. Finance Minister Makis Keravnos indicated support for this possibility when presenting the legislative package to parliament.
Large families with more than three children and household income below €100,000 also qualify for the additional deductions. Single persons earning up to €40,000 are eligible as well.
Deduction amounts
The tax deductions, provided the reform passes as proposed, are:
€1,000 per child (single-parent families fall into the more favourable category and will receive €2,000 per child)
€1,000 per university student (single-parent families receive €2,000)
€1,500 for interest on a serviced loan for purchasing a primary residence or an amount covering rent for primary residence
€1,000 for energy upgrades to primary residence or purchase of a new electric vehicle
Restrictions on tax relief
The bills specify that no tax deduction will be granted for any expense that received a grant, subsidy, allowance or other payment from public funds.
A government source told Phileleftheros this provision mainly concerns Energy Ministry grants for electric vehicle purchases and solar panel installations. Electric vehicle grants amount to €10,000 and solar panel grants to €1,000. In these cases, the tax relief will not be granted since the grant amounts are substantial, according to the source.
The provision is general in nature and will be discussed extensively on Friday when the bills return to the parliamentary Finance Committee for debate. Political parties and organisations are expected to seek clarification from the government side, as the article’s broad wording could be interpreted to include child benefits and student grants.
Landlords and rental income
Taxpayers who rent property as their primary residence will qualify for the €1,500 tax deduction, but must first declare the name and identity card number of the property owner along with detailed information about the property.
This will enable the Tax Department to tax landlords receiving rental income and address to some degree the phenomenon of undeclared rental income. The legislative package under parliamentary discussion makes bank transfer or electronic payment mandatory for rent exceeding €500.
Clarifications needed
Another point requiring clarification in the Finance Committee discussion concerns primary residences serving as collateral for serviced loans.
The article stipulating that neither spouse, cohabitating partner nor single person may own another residence in Cyprus needs clarification. The provision sets restrictions, and some affected stakeholders may demand its withdrawal.
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