The Council of Ministers has approved government’s tax reform bills and they will now be submitted to the House of Representatives for discussion and approval, Finance Minister Makis Keravnos announced, describing it as “an important and landmark initiative of the President of the Republic” that is now moving toward implementation.
Speaking at the Presidential Palace after the Cabinet meeting, Keravnos said the reform comprises a package of six amending bills, emphasising that these changes are necessary as they form part of a broader restructuring of the tax system. He noted that the reform, the first in 22 years, aims to ensure a fairer distribution of the tax burden, to support low-income groups and the middle class, and to strengthen the growth prospects of businesses, the vast majority of which are small and medium-sized.
The Finance Minister added that the reform also seeks to reinforce and sustain the resilience and growth trajectory of the Cypriot economy, while at the same time further enhancing the country’s comparative advantages for foreign investment, especially in sectors related to new technologies and digital transition.
He placed special emphasis on the social dimension of the reform, reflected in the tax relief measures designed to support family income. He said that additional support will be provided to single-parent families and young couples purchasing their first home, as well as for energy upgrades of primary residences.
Keravnos further said that the reform introduces new measures to combat tax evasion.
He announced a horizontal increase of the tax-free income threshold from €19,500 to €20,500, adding that this amount “is among the highest in the European Union.”
According to Keravnos, households with annual combined income under €80,000 for couples or cohabitants, under €100,000 for large families, and under €40,000 for single individuals will benefit from the following tax deductions: €1,000 per child, and €2,000 per child for single-parent families.
He added that an additional €1,000 deduction will be granted per student, €1,500 for interest on a primary residence loan or rent, and €1,000 for energy upgrades of primary residences or the purchase of a new electric vehicle.
Measures for businesses
Keravnos also referred to several measures concerning businesses, noting that the deemed distribution of dividends will be abolished for profits earned after January 1, 2026. At the same time, the rate of the special defence contribution on actual dividend distributions will be reduced from 17% to 5% for profits generated after that date, while the defence tax on rental income will be abolished.
The corporate tax rate, he said, will increase from 12.5% to 15%, while a special tax regime will be introduced for profits from the disposal of crypto-assets, with a flat rate of 8%. The period for carrying forward tax losses will also be extended from five to seven years.
Keravnos noted that “the overall fiscal impact of the tax reform, based on the government’s final decisions, is fiscally neutral, as this was one of the original goals of the reform.”
He also said that the expected benefits are distributed "more fairly between workers and businesses, households, men and women.” He noted that the reform places particular focus on young people and addressing low birth rates, while maintaining and enhancing conditions for attracting foreign investment and companies.
“I expect that the tax reform will be discussed by the House as a comprehensive package within a timely framework, so that this integrated reform, which benefits everyone, can take effect on January 1, 2026,” the Minister concluded.
(Source: CNA)
