More than 160,000 middle-class taxpayers will benefit from tax cuts approved by parliament yesterday, with families saving between €500 and €2,000 annually from 2026.
The House of Representatives passed five bills overhauling Cyprus’s tax system, raising the tax-free threshold to €22,000 and introducing new deductions for children, students, rent and loan interest. The changes take effect on 1 January 2026.
A coalition of DISY, DIKO, DIPA and EDEK pushed through the reforms despite opposition from AKEL, which voted against changes to income tax and capital gains rules whilst supporting anti-evasion measures. Of 18 amendments voted on, 11 passed unanimously.
How much families will save
The Cyprus Employers and Industrialists Federation calculated the annual savings for different income levels. Taxpayers earning €25,000 will save €500 yearly, or €38 monthly. Those on €40,000 benefit by €885 annually, or €68 monthly.
At higher income levels, earners on €70,000 will save €1,485 yearly or €114 monthly, rising to €1,585 annually for those earning €75,000 to €80,000. These figures exclude additional deductions for children, students, loan interest and rent, which significantly increase overall relief.
New deductions for families
Last-minute changes introduced graduated deductions for families with children and students up to age 24. The first child or student brings a €1,000 deduction, the second €1,250, and the third onwards €1,500 each.
To qualify, annual family income must not exceed €100,000 for families with one or two children, €150,000 for three or four children, and €200,000 for families with five or more children. Single-parent families where both parents hold full custody receive double deductions.
Additional deductions of €2,000 apply for loan interest or rent payments, and €1,000 for green home investments or electric vehicle purchases.
New tax brackets
Parliament adjusted the tax bands: 20 per cent on income from €22,001 to €32,000; 25 per cent from €32,001 to €42,000; 30 per cent from €42,001 to €72,000; and 35 per cent on income above €72,001.
Corporate tax rises but companies gain elsewhere
The corporate tax rate rises to 15 per cent—the third lowest in Europe—but companies benefit from sharp cuts to the defence contribution on dividends, which falls from 17 per cent to 5 per cent. Parliament also abolished the defence contribution on rental income and scrapped stamp duties entirely.
The government says these changes level the playing field between Cypriot and foreign companies after years of a system that favoured overseas businesses.
Crackdown on tax evasion
The legislation empowers the Tax Department to seal businesses from 1 January 2026 for non-payment of taxes or failure to issue permanent receipts. From July 2027, rent payments exceeding €500 must be made via bank transfer or electronic payment.
The department gains immediate authority to seize shares for debts above €100,000 and will access deposit data from Cypriot banks. All residents from age 25 must file tax returns. Late tax returns receive a grace period until 2027.
Disputed amendment raises eyebrows
One controversial amendment saw DISY and DIKO remove a Finance Ministry provision that would have ended a practice allowing companies to offset profits with subsidiary interest payments. The arrangement costs the state an estimated €30 million in revenue and has raised concerns about competitive disadvantages for Cypriot businesses.
President Nikos Christodoulides welcomed the reform, saying it restores balance between social justice and economic competitiveness. Benefits return directly to households, the middle class, families and businesses through less tax burden and more disposable income, he said.
Parliament rejected AKEL proposals to impose property tax on values exceeding €3,000 and introduce a graduated company fee.
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