Cypriots have begun calculating the benefits they will receive from a tax reform that raises the tax-free threshold to €22,000 and introduces new deductions for children, students and housing costs, though the bills have not yet been approved.
The tax relief for households appears locked in following an agreement reached on Tuesday between the coalition of DISY, DIKO, DEPA and EDEK and the Finance Minister. The parties agreed to submit amendments that will be incorporated into the government bills before the final vote.
The final text is expected to include a tax-free income threshold of €22,000, with an additional €1,000 deduction from taxable income for one child or student up to age 24 for males or 23 for females who are dependent on the taxpayer.
The other spouse is entitled to the same tax-free amount and deduction for one child or student.
For a second child or student, the deduction will be €1,250, and for three or more children or students, the deduction will be €1,500 for each, provided income criteria are met.
A €2,000 deduction will be granted for interest on serviced housing loans and rent for owner-occupation, and €1,000 for green investments in permanent residences and electric vehicle purchases.
The deductions are conditional on annual family income thresholds. For one child, the couple must not have a combined gross income exceeding €90,000.
For two children, the total family income must be up to €100,000; for three or four children, it will be €150,000; and for five children and above, the family income can be up to €200,000.
The tax brackets will be adjusted as follows: income from €22,001 to €32,000 will be taxed at 20%, from €32,001 to €42,000 at 25%, from €42,001 to €72,000 at 30%, and income above €72,001 will be subject to 35% tax.
In practice, each spouse or partner will submit a separate income tax return. However, Tax Department technicians will combine the incomes of both spouses or partners to determine whether additional tax relief is granted.
For example, a family with one child and a housing loan will see both taxpayers receive a €1,000 deduction for the child and €2,000 each for loan interest—a total deduction of €3,000 per person.
A family with one student and a housing loan will see each parent receive a €3,000 deduction from total annual income.
A family with two children who rent their accommodation will see each taxpayer receive a deduction of €4,250.
A family with two children and one student with a housing loan will receive tax deductions of €5,750 for each parent.
A family with three children without a loan will see each parent receive a €3,750 deduction.
A family with three students and a serviced housing loan will see each parent receive a €5,750 deduction, beyond the €22,000 tax-free threshold, provided income criteria are met.
In cases where parents are divorced, both will receive the tax deductions regardless of who has custody. Single parents or widows will receive double tax deductions, as they will benefit from those granted to a family with two parents.
If one of the two parents or partners does not submit an income declaration for the tax year, neither will be entitled to deductions, as proper calculation of family income will not be possible, according to officials.
After the tax-free amount and deductions are subtracted, along with other tax exemptions currently in place, the remaining income will be taxed based on the tax bracket into which it falls, according to an authoritative source.
A Finance Ministry source told Phileleftheros that digitisation of systems will make tax calculations easier. Guidelines are expected to be issued to taxpayers on the new method of completing tax returns.