Parliament approved a sweeping tax overhaul today, the island’s first comprehensive reform in 23 years, raising corporate taxes whilst expanding relief for families and middle-income earners.
The legislative package, passed by the House of Representatives plenary, raises the personal tax-free threshold to €22,000 and introduces scaled deductions for families with children and students. Corporate tax will rise to 15% from 12.5%, though the special defence contribution on dividend distributions will drop sharply from 17% to 5% for profits earned after 1 January 2026.
Parliament also abolished stamp duty and unanimously approved an amendment exempting pension fund investment activities from taxation. Several changes emerged through joint party amendments that will be incorporated into the final legislation.
Personal tax changes
The reform introduces graduated child and student deductions up to age 24. Families receive €1,000 for the first child or student, €1,250 for the second, and €1,500 for the third and subsequent children.
Additional deductions apply based on family income and size. Households with one or two children qualify if annual income stays below €100,000, rising to €150,000 for three or four children and €200,000 for families with five or more children.
The package allows €2,000 deductions for loan interest and rent, €1,000 for green home investments including electric vehicle purchases, and up to €500 for home insurance against natural disasters.
New tax brackets set rates at 20% for income between €22,001 and €32,000, 25% for €32,001 to €42,000, 30% for €42,001 to €72,000, and 35% above €72,001.
Corporate measures
The reform abolishes deemed dividend distribution for profits earned after 1 January 2026 and removes the special defence contribution on rental income.
Parliament extended the loss carry-forward period from five to seven years and prolonged the 120% research and development super-deduction until 2030. The entertainment expenses deduction ceiling rises to €30,000 from €17,086.
Cryptocurrency gains within taxable profits face an 8% rate, whilst stock options under approved employer schemes carry an 8% flat rate. Severance payments are taxed at 20% with a €200,000 tax-free allowance when paid due to employment termination.
Anti-evasion powers
The tax department gains new enforcement tools, including mandatory electronic payment for rent exceeding €500 from 1 July 2026. All individuals aged 25 and above must file tax returns.
The Tax Commissioner can now request six-year asset and liability statements and demand banking records from Cyprus-based banks. Authorities can seal businesses for failing to file returns, issue proper receipts, or settle tax debts, though taxpayers retain the right to challenge such decisions in court.
Tax debts exceeding €100,000 trigger company share freezes.
Parliament rejected AKEL proposals to tax properties valued above €3 million and introduce graduated corporate levies.
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