Cyprus’ tax reform is already translating into higher income for households and stronger incentives for businesses, with only positive outcomes expected from the overhaul, the country’s Tax Commissioner Soteris Markides has said.
He was speaking in an interview with the Cyprus News Agency (CNA).
Just one month after the reform came into force, around 200,000 individuals have seen their net income rise with the payment of January salaries, while an estimated 30,000 taxpayers are expected to pay zero income tax in 2026, Markides said.
The reform, which he described as “holistic” and a landmark for Cyprus’ tax system, aims simultaneously to support households, enhance business competitiveness and strengthen tax compliance.
Higher thresholds, broader relief for individuals
At the core of the changes for individuals is the upward revision of income tax brackets, with the tax-free threshold rising from €19,500 to €22,000. New personal deductions have also been introduced, mainly linked to family income criteria, allowing tax relief based on household composition.
Markides said that these deductions cover dependent children, housing costs (rent or interest on a serviced mortgage), and the green transition, including home energy upgrades and electric vehicles. Additional deductions, without income criteria, apply to home insurance against natural disasters and insurance against permanent or temporary disability.
Under the new regime, even individuals with no personal deductions—such as young workers—will only start paying income tax if their gross monthly income exceeds €2,100 (on a 12-month basis). According to Markides, Cyprus is the only country in Europe offering such a high effective threshold.
Tangible benefits for families and SMEs
Referring to businesses, the Tax Commissioner said that although the corporate tax rate has risen from 12.5% to 15%, this increase is more than balanced out for Cypriot entrepreneurs by other changes, especially the abolition of the deemed dividend distribution and the cut in the defence contribution on dividends from 17% to 5%.
“These changes significantly improve the competitiveness of Cypriot businesses, which was one of the main objectives of the reform,” he said. The period for carrying forward tax losses has also been extended from five to seven years, offering firms greater flexibility.
As am example, Markides said that a small family-owned business with taxable profits of €100,000 in 2026 would, under the previous system and with full dividend distribution, have paid €27,375 in total tax. Under the new regime, its tax burden is €8,125 lower, translating into more than €80,000 in additional income for shareholders over a decade.
More than 30,000 small Cypriot family businesses are expected to benefit, he added.
The reform also abolishes stamp duty, raises thresholds for maintaining transfer pricing documentation—cutting compliance costs for smaller firms—and introduces clearer rules on share option schemes and the taxation of crypto-assets. In addition, non-domiciled individuals are given the option of voluntarily extending their non-dom status, enhancing certainty for international investors.
Stronger compliance, with safeguards
On tax compliance, Markides said the new enforcement measures respond to long-standing demands from society and compliant taxpayers. Key tools include the temporary sealing of business premises in cases of persistent non-payment or non-compliance, the freezing of shares where tax liabilities exceed €100,000, and access to domestic bank account data.
However, he stressed that these powers will be applied “with restraint”, particularly the sealing of premises, and not against businesses making genuine efforts to comply.
To support the rollout of the reform, the Tax Department has launched an extensive information campaign. By the end of February, more than 10,000 people are expected to have attended seminars, including over 3,000 professionals, aimed at ensuring smooth implementation.
(Source: CNA)
