On February 26, 2025, President Nikos Christodoulides introduced a series of proposed Cyprus tax reforms aimed at modernizing the country’s tax system. These proposals, if enacted, will significantly impact businesses and individuals. However, it is essential to note that these tax changes in Cyprus have not yet become law and are subject to further review and potential amendments.
Key Cyprus Tax Reform Proposals
Increase in Corporate Income Tax: The corporate tax rate in Cyprus is set to rise from 12.5% to 15%, aligning with global tax trends.
Abolition of Deemed Dividend Distribution (DDD): The existing deemed distribution rules will be annulled.
Reduction in Dividend Withholding Tax: The dividend tax in Cyprus will decrease from 17% to 5% for natural persons who are tax residents and domiciled in Cyprus.
Non-Domicile Status: The non-dom tax status in Cyprus remains unchanged, but an option for extending the period with an annual fee will be introduced.
Abolition of SDC on Rental Income: The special defence contribution on rental income will be eliminated.
Stamp Duty Adjustments: Cyprus stamp duty will be limited to agreements related to immovable property, banking, and insurance transactions.
Stock Options Taxation: Consideration will be given to taxing stock options in Cyprus at a lower rate at the time of exercise, subject to conditions.
Ex-Gratia Payments & Golden Handshakes: These payments will be fully taxable for employees, while employers may deduct the full amount as an expense.
Culture-Related Contributions: Donations to cultural activities will be tax-deductible based on the Deputy Ministry of Culture’s recommendations.
Extended Loss Carry-Forward Period: The period for carrying forward tax losses will extend from five to ten years (subject to restrictions).
Green Transition & Digital Transformation Incentives: Businesses investing in sustainability and digital innovation in Cyprus will benefit from super deductions, accelerated depreciation, and personnel training incentives.
Personal Income Tax Adjustments
Increase in Tax-Free Threshold: The tax-free personal income threshold in Cyprus will rise from €19,500 to €20,500.
Revised Tax Bands: The new Cyprus income tax bands will be as follows:
€0 – €20,500: 0%
€20,501 – €30,000: 20%
€30,001 – €40,000: 25%
€40,001 – €80,000: 30%
Over €80,000: 35%
New Deductions: Additional Cyprus tax deductions will be available for families with children, housing loans, rent payments, and green household upgrades.
Next Steps for Cyprus Tax Reform
These proposals remain under review and will undergo scrutiny by economic experts, business associations, and professional bodies. The Ministry of Finance will present the final Cyprus tax reform bills to the Council of Ministers before submission to the House of Representatives. The Finance Committee of the House of Representatives will assess the draft legislation before it is put to a vote.
The reforms are expected to take effect starting from the 2025 tax year, with full implementation by 2026.
Impact on Businesses and Investors
While these Cyprus tax law changes represent significant potential shifts, they have not yet taken legal effect. Businesses and investors should closely monitor developments and assess how these reforms may impact their financial planning and tax obligations in Cyprus.
For guidance on navigating Cyprus’ evolving tax framework, contact Nikita & Partners for tailored advice and compliance support. Reach out at info@nikitapartners.com.cy.
