On 26 February 2025, the Economics Research Center of the University of Cyprus and the Tax Authorities presented a set of proposed amendments as part of a comprehensive tax reform plan. These proposals, which aim to modernize the Cypriot tax system while aligning it with European standards, are currently under review by the Ministry of Finance. Following this assessment, they will be submitted to the Council of Ministers and eventually to the House of Representatives for voting. As such, these measures are not yet finalized and may be subject to further modifications.
Key Proposed Changes
Personal Income Tax
Increase in Tax-Free Allowance: The tax-free annual income threshold is proposed to rise from €19,500 to €20,500.
Adjustments to Tax Brackets: The 35% tax rate will now apply to incomes exceeding €80,000, an increase from the previous threshold of €60,000.
New Deductions for Families and Individuals:
Additional tax-free allowance of €1,000 per dependent.
€1,500 tax-free allowance for parents purchasing their first home or paying rent.
€1,000 tax-free allowance for green household upgrades.
Single parents may benefit from double these allowances.
Corporate Income Tax
Increase in Corporate Tax Rate: The standard corporate tax rate is set to rise from 12.5% to 15%.
Abolition of Deemed Dividend Distribution Rules: The existing deemed dividend distribution mechanism is to be eliminated.
Reduction in Special Defence Contribution (SDC) on Dividends: The SDC rate applicable to dividends received by Cyprus-domiciled and tax-resident individuals will be reduced from 17% to 5%.
Stamp Duty and Other Adjustments
Stamp Duty Limitations: Stamp duty will only apply to agreements related to real estate transactions, banking, and insurance contracts.
Extended Tax Loss Carryforward: The period for carrying forward tax losses will increase from 5 years to 10 years, subject to conditions.
Green & Digital Investment Incentives: Companies investing in environmentally friendly initiatives or digital transformation may qualify for super deductions or accelerated depreciation, with no restrictions on carrying forward related tax losses.
Next Steps
As these are only proposals, they are still undergoing review. The Ministry of Finance will further assess their potential impact before submission to the Council of Ministers and, subsequently, the House of Representatives for approval. Some provisions may take effect as early as 2025, with full implementation expected by 2026.
What This Means for Businesses and Individuals
The proposed reforms reflect a shift towards a more competitive, equitable, and modern tax system. Businesses should assess how the changes might impact their tax liabilities and strategic planning. Individuals, especially those benefiting from the new personal tax deductions, should stay informed about how these reforms may affect their financial planning.
At Asterisk Corporate Services, we closely monitor legislative developments and are available to help businesses and individuals navigate these changes. If you have any questions about the potential implications of the proposed tax reforms, feel free to contact our team for further guidance. Please also note that the above is for reference only and does not constitute any form of tax advise.
Stay tuned for updates as the legislative process unfolds.
Relevant article in the local press can be found here.
