Cyprus: Tax reform passed by Parliament

A landmark decision by Parliament today, as 23 years after the previous reform, it approved Cyprus’ new tax regime, with the main changes as follows:

Individuals

• The tax-free threshold increases to €22,000 and additional deductions will be provided depending on the number of children and income levels.
• To qualify for additional tax deductions, the annual income of a family with one or two children must be €100,000; for three to four children it rises to €150,000; and for large families with more than five children it increases to €200,000.
• Tax deductions will be progressive for children and students (up to 24 years old, women and men).
• Adoption of new tax brackets. For incomes from €22,001 to €32,000 the tax rate will be 20%. Incomes from €32,001 to €42,000 will be taxed at 25%. Annual earnings from €42,001 to €72,000 will be taxed at 30%. Incomes above €72,001 will be subject to a 35% tax rate.

For businesses (mainly Cypriot)

• The deemed dividend distribution on profits earned after 01.01.2026 is abolished.
• The rate of the special defence contribution on actual dividend distribution is reduced from 17% to 5%, for profits generated after 01.01.2026.
• The special defence contribution on rental income is abolished.

For all businesses (Cypriot and foreign)

• Corporate tax increases to 15% from 12.5%.
• The loss carryforward period is extended from 5 years to 7 years.
• The 120% super-deduction for research and development expenses related to intangible assets is extended until 2030.

Anti-tax evasion measures

• Mandatory payment of rent exceeding €500 via bank transfer or electronic payment.
• Mandatory submission of a tax return by all individuals from the age of 25.
• Sealing of businesses for failure to submit tax returns, for failure to issue legal receipts and for tax debts.
• Freezing of company shares for tax debts exceeding €100,000.

Source: Philenews