Cyprus is rolling out its first full tax reform in 22 years. Six bills have left the Cabinet and are now with Parliament for approval (i.e. not approved yet), with the Government aiming for a start date of 1 January 2026. The big picture is simple: lighten the load on households and simplify the rules, while tightening compliance so everyone plays by the same standards.
At the time of writing this article the legislation was not enacted, as it was approved towards the end of December 2025. You can read more information about the enacted Cyprus Tax Reform Law in our dedicated articles here & our Tax Reform FAQ here.
Below is the user-friendly version you asked for with quick examples to better understand what is changing through the Cyprus Tax Reform.
Key takeaways (in one minute)
- Personal income tax: tax-free amount rises to €20,500; new bands at 20% / 25% / 30% / 35%.
- Family support: extra deductions for children, students, housing costs, and energy upgrades/EVs (subject to income caps).
- Corporate tax: 12.5% → 15% from the 2026 tax year. Even at 15%, Cyprus will remain among the lowest corporate-tax jurisdictions in the EU.
- Dividends: Deemed Dividend Distribution ends for profits earned from 1 Jan 2026; actual dividends on those profits carry 5% SDC when Cypriot domiciled.
- Rental income: SDC on rents is abolished.
- Crypto & stock options: special flat 8% tax (with conditions).
- Losses: carry forward for 7 years.
- 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.
- Compliance: one 31 January deadline for company filing and payment; three written warnings before any temporary sealing; stronger audit information powers. Each year, companies both file their corporate tax return and pay any corporate tax by 31 January of the following year. One date, less confusion.
What changes for individuals
- Higher tax-free amount and new bands
- First €20,500 is tax-free.
- Amounts above that are taxed at 20% (to €30k), 25% (to €40k), 30% (to €80k), 35% (over €80k).
Example: Salary €32,000 → €20,500 tax-free; €9,500 at 20%; €2,000 at 25%.
- Family-based deductions (income caps apply)
If family income is under €80,000 (or €100,000 for large families) and singles under €40,000, you may claim each year:- €1,000 per child (single-parent families: €2,000 per child)
- €1,000 per student
- Up to €1,500 for primary-home mortgage interest or rent
- Up to €1,000 for home energy upgrades or an EV (unused amounts can carry forward for up to four years)
Example: Couple with two children and one university student → €1,000 × 2 + €1,000 = €3,000 per spouse, plus housing/energy deductions if eligible.
- Termination lump sums (ex-gratia)
- €200,000 tax-free; any excess taxed at 20%. Employers may deduct such payments.
- Insurance deductions broaden
- Life-insurance deduction now also covers permanent/partial disability cover.
- Home natural-disaster insurance deductible up to €500.
What changes for businesses
- Corporate tax and losses
- CIT 15% from the 2026 tax year.
- Loss carry-forward extended to 7 years.
- Dividends and the end of deemed distribution
- Deemed Dividend Distribution (DDD) is abolished for profits earned from 1 January 2026.
- Actual dividends paid from those 2026-onward profits carry 5% SDC.
- SDC on rental income is abolished.
Clarification: Profits up to 31 Dec 2025 keep the old DDD rules; profits from 2026 move to a simpler “tax when actually paid” model at a lower 5%. - Crypto and equity compensation
- 8% flat method for profits from crypto disposals (losses offsettable in the same year).
- 8% flat method for stock-option gains under an approved employer plan (caps/conditions apply).
- Innovation and investment
- 120% R&D super-deduction extended to 2030; enhanced energy-upgrade allowances continue.
- Stamp duty simplified
- 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.
- Compliance and deadlines:
- One date for companies: 31 January
The reform lines up company obligations so you file the corporate tax return and pay the corporate tax on the same day: 31 January of the year after the tax year.
Example: For the 2026 tax year, file and pay by 31 January 2028. - Three written warnings before any “sealing”
If a business repeatedly breaks tax rules (e.g., not issuing receipts, blocking an audit), the Tax Department can ask the court to temporarily seal the premises. That only comes after three written warnings for the same behaviour. It’s a last resort aimed at serial offenders.
Example: A shop ignores three formal warnings about receipts; if it happens again, a short court-ordered closure can follow.
- One date for companies: 31 January
Other changes you’ll notice
- All Cyprus-resident individuals aged 25+ must file a return, even with no taxable income.
- The audited-accounts threshold for individuals with business income rises to €120,000 gross (currently €70k).
- 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.
Capital gains and property
- Lifetime exemptions increase: general to €20,000, agricultural land to €30,000, primary residence to €100,000.
- Anti-avoidance tweaks bring more indirect property disposals (via shares in property-rich companies) into scope.
- In property exchanges, the exemption also covers the consideration received.
- The Tax Commissioner may withhold consent for certain transfers if parties aren’t tax-compliant (sales excluded).
Investment funds and interest income
- From 1 January 2031, profits on redemption of units/shares in collective investment schemes will be treated as dividends.
- Interest income of individuals, provident funds and certain public bodies sits outside income tax and is handled under defence-contribution rules to avoid double taxation layers.
What was removed after consultation
- Treating someone as Cyprus tax resident purely by “centre of interests” (regardless of days) was dropped.
- Plans to re-characterise company-paid director/adviser fees as personal income were scrapped.
- A narrow “necessary to earn income” test for deductions was deleted.
- Proposed limits linking the IP regime and the 20% R&D super-deduction for related parties were removed.
- An expansion that could treat some shareholding reductions as disposals for capital gains was removed.
Timeline at a glance
- Late October 2025: Cabinet approval and submission to Parliament.
- Late November 2025: Finance Committee discussions expected to start.
- Target start: 1 January 2026, subject to Parliament.
- Transition: DDD still applies to profits up to 31 Dec 2025; 5% SDC on actual dividends applies to profits from 2026.
What to do now
- For employees and families
- Check if you fall under the income caps to use the family deductions.
- If you expect a termination package, plan around the €200k tax-free and 20% on the balance.
- Consider disability cover and home natural-disaster insurance for the new deductions.
- For business owners and CFOs
- Model 2026 with CIT 15%, 7-year losses, and 5% SDC on actual dividends. Decide how to treat 2025 vs 2026 profits.
- If you use stock options or hold crypto, check eligibility for the 8% methods and get scheme approvals lined up.
- Update calendars to the 31 January deadline and make sure your audit trail and data-retention are ready for stronger information requests.
- Revisit R&D and energy-upgrade plans to lock in the enhanced incentives.
How we can help
At Asterisk Corporate Services we provide a full suite of Corporate, Tax, and ongoing administration services. We can assist with Company Incorporation, Tax Advise and ongoing support. Contact us for more information at contact@asterisk.cy.
Disclaimer: This article is for general information only, does not constitute tax or legal advice and does not meant to be exchaustive to cover all changes. The bills are pending parliamentary debate and may change. Obtain personalised advice before acting.
