Panayiotis Rougalas
From January 1, 2026, Cyprus will officially turn the page on how it taxes income and businesses.
After 23 years under a tax system that was repeatedly tweaked to keep up with the times, the House of Representatives voted on December 22, 2025, to usher in a brand-new tax framework that will shape how the country operates going forward.
The government had pushed hard for the reform to be approved in time for the start of 2026, a deadline it had set itself, and despite strong pressure and tight timelines, Parliament ultimately passed the bills needed to launch the new system.
What changes for individuals
There are plenty of moving parts in the reform, but for most people, a few key changes stand out.
First, the tax-free income threshold is going up from €19,500 to €22,000.
Beyond that, income tax brackets are being 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%
- Income above €72,001 will be taxed at 35%
Families with children will also see meaningful tax relief. Under the new system, each parent or partner will be entitled to:
- €1,000 for the first child
- €1,250 for the second child
- €1,500 for the third child and beyond
The reform also introduces new deductions aimed at easing everyday costs. These include a €1,000 tax exemption per spouse or partner for housing and green-related expenses.
In addition, rent payments and interest on a serviced housing loan will be tax-exempt up to €2,000 per year for each spouse or partner, one of the most impactful changes for households.
What changes for companies
For businesses, the headline change is the complete abolition of deemed dividend distribution, a long-standing issue for many companies.
At the same time, withholding tax on actual dividend distributions will drop sharply, from 17% to 5%, for profits generated after January 1, 2026.
The reform also does away with stamp duty, expands exemptions related to capital gains tax, and introduces more favorable treatment of stock options.
On the flip side, corporate tax will increase from 12.5% to 15%, aligning Cyprus more closely with international standards.
Cracking down on tax evasion
The reform package also includes stricter measures to tackle tax evasion.
From July 2026, rent payments exceeding €500 will have to be made via bank transfer or electronic payment, closing the door on undeclared cash transactions.
In addition, all individuals aged 25 and over will be required to file a tax return, regardless of income.
The Tax Department’s powers are also being strengthened. Data retention periods will be extended to six years, authorities will be able to request bank details more easily, and tax inspectors will have the power to temporarily shut down businesses that fail to file returns, issue legal receipts, or settle outstanding tax debts.
