On 26 February 2025, the Cyprus Tax Reform Team, led by the Economics Research Centre of the University of Cyprus, presented its proposals for a long-anticipated tax reform at the Presidential Palace. These proposals aim to modernize Cyprus’s tax framework, encourage economic growth, and align with international tax standards.

The proposed changes are set for public consultation before being reviewed by the Council of Ministers and subsequently submitted to Parliament for approval. If approved, the new tax measures are expected to take effect in 2026.

Key Proposed Amendments

Corporate Tax

• Corporate Income Tax Rate: Increase from 12.5% to 15% for all companies.
• Corporate Tax Residency: Strengthened criteria based on “management and control.”
• Retained Benefits: Key incentives such as the Notional Interest Deduction (NID), Intellectual Property (IP) Box Regime, and Tonnage Tax Regime remain unchanged.

Special Defence Contribution (SDC)

• Reduction of SDC on dividends from 17% to 5%, applicable to Cyprus tax-resident and domiciled individuals.
• Abolition of the Deemed Distribution Rules.
• Removal of SDC on rental income for both individuals and companies.

Personal Income Tax

• Increase in the tax-free threshold from €19,500 to €20,500.
• Revised tax bands:
  • €20,501 – €30,000: 20%
  • €30,001 – €40,000: 25%
  • €40,001 – €80,000: 30%
  • Above €80,000: 35%
• New tax deductions for:
  • Families with children/students (based on income criteria).
  • Individuals paying housing loans for their primary residence or rent.
  • Green household upgrades.
• Extension of the “60-day rule” for tax residency to include individuals with Cyprus as their center of business interests, regardless of time spent in the country.
• Retaining the non-domiciled tax status, with a potential extension beyond 17 years upon payment of an annual fee.

Stock Options & Employee Benefits

• Stock options taxed at a lower rate upon exercise (subject to conditions).
• Ex-gratia payments: A portion to remain tax-exempt, while employers can claim full tax deductions.
• Golden Handshakes/Sign-on Bonuses: To be taxed, but employers can claim them as deductible expenses.

Other Notable Changes

• Tax Losses: The carry-forward period for tax losses will extend from 5 to 10 years (subject to conditions).
• Stamp Duty: To be imposed only on agreements related to immovable property, banking, and insurance transactions.
• Abolition of the 1.5% Insurance Premium Tax for insurance companies.

What Stays Unchanged?

While significant changes are proposed, several beneficial provisions will remain:

• 50% personal income tax deduction for first employment in Cyprus.
• Exemption from Special Defence Contribution for non-domiciled tax residents.

Next Steps

These proposals will undergo public consultation and refinement before being approved by the Council of Ministers and the House of Representatives. If passed, they are expected to be effective from 2026.

The proposed amendments are set to impact both individuals and businesses, bringing changes to taxation while preserving Cyprus’s attractive tax framework. If you have any questions on how these changes could affect you or your business, feel free to reach out for further discussion.