UPDATE – Cyprus 2025 Tax Reform – Summary of Proposed Legislative Amendments

The Council of Ministers has approved a comprehensive package of six draft laws introducing the most extensive tax reform in Cyprus in over a decade.
The measures aim to modernize the framework, simplify compliance, promote fairness, and strengthen the effectiveness of the tax administration.

Subject to parliamentary approval, the new provisions will apply from 1 January 2026.

1. Income Tax Law

Personal income tax

• New tax bands applicable from the 2026 tax year:

• Tax-free threshold increased from €19.500 to €20.500.
• Additional deductions introduced:
  • €1.000 per child (€2.000 for single parents).
  • €1.000 for each dependent child who is a university student.
  • €1.500 for mortgage or rental interest on main residence.
  • €1.000 for home energy upgrades or purchase of an electric vehicle.

Corporate taxation

• Corporate income tax rate increased from 12,5% to 15%.
• Gains from the disposal of crypto-assets taxed at a flat 8% (applies also to individuals), with same-year loss offset.
• Loss carry-forward period extended from 5 to 7 years.
• R&D super-deduction of 120% extended to 2030.
• Stock option income taxed at 8%, capped at €1 million over ten years.
• Entertainment expenses deductible up to €30.000 from €17.086.
• Termination gratuities taxed at 20% on amounts exceeding €200.000.

Transfer Pricing thresholds
The obligation to maintain a Cyprus Local File applies only where the total annual value of controlled transactions per category exceeds:

• €10.000.000 for financing transactions.
• €5.000.000 for trading of goods.
• €2.500.000 for all other controlled transactions.

 2.Defence Contribution Law

• Deemed  dividend distribution abolished for profits earned from 1 January 2026 onwards.
• Actual dividends from post-2026 profits taxed at 5% (reduced from 17%).
• Rental income no longer subject to Defence Contribution.
• 5%  withholding tax on dividends paid to entities resident in low-tax       jurisdictions.
• Interest Defence Contribution reduced to 3% for government bonds of       other EU states, GHS deposits, charitable and similar organisations, and       interest on listed bonds on the CSE New Market.
• Non-dom  regime clarified and extended:
  • The 17-out-of-20-year rule for domicile is codified in law.
  • Individuals who become domiciled after 17 years of Cyprus tax residency may elect to extend  their non-dom exemption by paying a €250.000 lump sum for a period of five years, renewable once for another five years.
• New anti-abuse  provisions introduced, including a 10% levy on disguised dividends and a general anti-abuse rule.

 3. Capital Gains Tax Law

• The definition of immovable property broadened: share disposals are taxable when at least 20% of a company’s value derives directly or  indirectly from Cyprus immovable property (previously 50%).
• Exemption extended to disposals under property-for-consideration (αντιπαροχή)  arrangements.
• The Tax Department may withhold transfer approval where parties are not tax compliant, except in foreclosure cases.
• Valuation and penalty provisions updated.

4. Assessment and Collection of Taxes Law

• Audit requirement threshold for individuals increased from €70.000 to €120.000annual income.
• Corporate  tax return deadline set to 31 January of the second following year.
• Mandatory filing of income tax returns by all residents aged 25 and above, regardless of income.
• Partnerships required to file tax returns.
• Objection period extended to 60 days.
• Record-keeping period extended to eight years.
• The Tax Department’s powers enhanced, including access to financial and professional data when necessary for enforcement.

5. Tax Collection Law

• The law expands and clarifies the Tax Department’s powers to recover outstanding taxes.
• Measures may include the freezing or attachment of bank accounts and movable assets, and the registration of charges over immovable property to secure payment.
• The  Commissioner may also take enforcement action on financial assets or    participations in legal entities, where necessary for tax recovery.
• A new payment-in-kind mechanism allows taxpayers to settle liabilities through the transfer of immovable property to the State.

6. Stamp Duty Law

• The law  is modernised and rewritten to simplify procedures and align with digital processes.
•  Introduces electronic stamping and online validation of documents.
• Establishes clear rules on who is liable to pay and when the obligation arises.
• Replaces the old schedule with a simplified list of document categories, including updated fixed and percentage-based rates with maximum caps.
• Stamp duty continues to apply to credit facilities, guarantees, and leases among others.
• The  objective is simplification and digitalisation, not full abolition of stamp duty.

We will continue to monitor the progress of these proposals and will provide updates once the final laws are enacted and published in the Official Gazette, including any changes from the current drafts.

Contact us to understand how the proposed tax reform changes may affect your business.