Cyprus tax revenues rose by 5.9% in the first five months of 2026, though a sweeping tax reform introduced on 1 January squeezed collections in specific categories, particularly personal income tax.
Generous tax allowances targeting middle-class earners, who saw income growth over recent months, drove the drop in individual tax revenue.
State coffers collected approximately €3.1 billion from January to May 2026, up from €2.92 billion during the same period in 2025. This generated a €171.3 million net surge for the Tax Department. However, data analysis reveals that key tax categories shrank under the weight of the new framework.
Income tax drops 2%
Individual income tax revenues fell by 2%, representing a €9.9 million loss. Collections dipped to €497.8 million from the €507.8 million recorded last year.
Stamp duty revenue, which was completely abolished on 1 January, plummeted by 71.6% or €12.9 million compared to 2025. The state collected just €5.1 million in residual stamp duties this year, down from €18.1 million up to May last year.
Changes across a series of other minor taxes caused an additional 36.2% drop in miscellaneous revenues, downing receipts by €2.7 million. This category brought in €4.8 million by May 2026, down from €7.5 million in the corresponding period last year.
Casino tax revenues also landed lower, generating €10.4 million against €12.4 million by May 2025. Meanwhile, import VAT collected at customs dipped 0.5% to €317.8 million. The Tax Department noted that the decreases in casino taxes and import VAT were not directly linked to the tax reform.
A major reform milestone
The overhaul marks a significant milestone for the state, following systematic collaboration between the government, the House of Representatives, and wider stakeholders.
The Tax Department described the measures as a holistic reform unseen in the country for many years. Officials expect positive long-term outcomes for businesses, ordinary taxpayers, and Cypriot entrepreneurs alike.
Income boost for 200,000 Earners
The structural shifts boosted the net disposable income of 200,000 individual taxpayers, while moving 30,000 individuals into a zero-percent tax bracket for 2026.
The reform raised the tax-free threshold to €22,000, restructured tax bands, and introduced new personal allowances. These targeted deductions aim to relieve Cyprus tax residents based on family status and income levels.
Taxpayers receive deductions linked to dependent children and university students, rent, interest paid on performing primary residence mortgages, primary home energy upgrades, and electric vehicle purchases.
The new income tax bands operate as follows:
- €22,001 to €32,000: 20%
- €32,001 to €42,000: 25%
- €42,001 to €72,000: 30%
- Over €72,001: 35%
Additional targeted deductions covering children, students, mortgage interest, rent, and green investments apply to families with incomes up to €100,000 for those with up to two children, up to €150,000 for three to four children, and up to €200,000 for five or more children.
For single individuals, the income cap to qualify for these extra deductions sits at €40,000. The framework awards a €1,000 deduction for the first dependent child or student, €1,250 for the second, and €1,500 for the third and any subsequent children.
Deductions for mortgage interest and rent peak at €2,000, while green investments grant a €1,000 deduction. These new personal allowances do not reduce the gross taxable income used to calculate the maximum one-fifth deduction for insurance premiums, Gesy healthcare contributions, and pension fund inputs; they are granted additionally. Filing tax returns is now mandatory for all citizens aged 25 to 71, regardless of income.
Corporate and structural changes
Beyond individual adjustments, the reform significantly altered corporate and broader taxation to lift market competitiveness and tax fairness.
For Cypriot businesses, the state abolished deemed dividend distributions for profits earned after 1 January 2026. The actual dividend distribution rate under the Special Defence Contribution (SDC) dropped sharply from 17% to 5%. The SDC levy on rental income was completely axed.
For all corporate entities, both domestic and foreign, the corporate tax rate rose to 15% from 12,5%. The law introduced a specific 8% tax rate on crypto-asset disposal profits when integrated into taxable corporate net profits, and extended the corporate loss carry-forward period from five to seven years.
Furthermore, a 120% super-deduction for research and development expenses on intangible assets was extended until 2030. The tax-deductible ceiling for business entertainment expenses grew from €17,086 to €30,000.
New frameworks regulate stock options, crypto-assets, and the extension of the non-domicile status to attract foreign investors and taxpayers. Finally, the Tax Department received enhanced enforcement tools to collect tax arrears, including the power to seal business premises and freeze company shares. Inside Cyprus, all rental payments must now be executed exclusively via bank transfer, debit card, or other approved electronic payment methods.