Effective 1 January 2026, the Republic of Cyprus implemented a comprehensive tax reform that represents the most significant overhaul of its fiscal system in over two decades. The reforms, enacted by the House of Representatives on 22 December 2025 and published in the Official Gazette at year-end, introduce structural changes to corporate and personal taxation, targeted relief measures for households, and strengthened compliance and enforcement mechanisms. These changes reflect Cyprus’s dual policy objectives: enhancing competitiveness while broadening the tax base and improving equity.
Context and Policy Objectives
The 2026 tax reform was designed against a backdrop of economic transformation and international tax standardisation. Cyprus, long recognised for its competitive tax regime within the European Union, has recalibrated key elements of both personal and corporate taxation. Policymakers emphasised three core goals:
- Support for families and households through targeted relief,
- Modernisation and simplification of tax rules, and
- Strengthened tax compliance and enforcement.
Combined, these aims seek to balance fiscal sustainability with social cohesion and investment attractiveness.
Corporate Taxation: Alignment and Incentives
One of the most widely discussed changes in the reform is the corporate income tax (CIT) rate increase from 12.5% to 15%, aligning Cyprus with the OECD Global Minimum Tax benchmarks adopted internationally. This adjustment aims to safeguard the jurisdiction’s competitiveness while addressing global tax reform pressures.
Key corporate provisions include:
- Abolition of deemed dividend distribution rules, reducing compliance complexity for companies.
- Reduction of withholding tax on dividend distributions to 5% for both resident and qualifying recipients.
- Increased tax losses carry-forward period from five to seven years.
- Targeted allowances for research and development (R&D) and other investment incentives.
Additionally, the stamp duty regime has been completely abolished, removing a traditional transaction cost and further modernising the tax code for corporations and investors alike.
Personal Taxation: Progressive Relief and New Obligations
The reform marks a significant shift in personal income taxation by restructuring tax brackets and enhancing allowances, particularly for lower and middle-income earners.
Revised Tax Bands
From the 2026 tax year, the personal income tax structure introduces a higher tax-free threshold and a progressive set of brackets:
| Taxable Income (EUR) | Tax Rate |
| Up to €22,000 | 0% |
| €22,001–€32,000 | 20% |
| €32,001–€42,000 | 25% |
| €42,001–€72,000 | 30% |
| Above €72,000 | 35% |
The increase of the tax-free allowance from €19,500 to €22,000 delivers broad relief to taxpayers, with official estimates indicating potential annual savings of several hundred euros for middle-income earners.
Targeted Deductions and Family Support
A cornerstone of the reform is the introduction of structured deductions for families, designed to support children and students up to age 24:
- €1,000 for each parent for the first child,
- €1,250 for the second child,
- €1,500 for the third and each subsequent child.
Additional deductions target housing affordability and sustainability goals, including relief for rent and mortgage interest (up to €2,000), “green” investments in home energy efficiency (up to €1,000), and home insurance against natural disasters (up to €500).
Modernisation and Compliance Enhancements
The reform also strengthens the administrative framework governing tax compliance and enforcement:
- Mandatory tax return filing for all residents aged 25 and above, regardless of income level, expanding the tax base and transparency.
- Electronic payment requirements for rental transactions above a defined threshold to curb undeclared income, effective from July 2026.
- Broader audit and information-gathering powers for the Tax Department, including access to banking and asset records.
These procedural updates are intended to modernise enforcement and reduce tax evasion, reflecting best practices in tax administration.
Specialised Taxation Areas
The reform introduces specific frameworks for emerging economic categories:
- A flat 8% tax on cryptocurrency profits, bringing digital asset transactions within the formal tax base.
- Defined tax treatment for stock-based compensation, also generally subject to an 8% rate under approved schemes.
These provisions clarify Cyprus’s stance on digital and equity-linked income streams, aligning with international standards and investor expectations.
Implications for Taxpayers and Businesses
The 2026 tax reform represents a recalibration of Cyprus’s fiscal landscape. For individuals, it delivers meaningful relief for families and middle-income earners while strengthening compliance obligations. For businesses, the combination of a higher CIT rate with simplified dividend taxation and expanded allowances aims to balance competitiveness with fiscal responsibility.
Tax professionals and affected entities are advised to undertake comprehensive reviews of their tax planning and compliance structures considering these changes. With the first tax returns under the new regime due in 2027, early preparation will be critical to maximising benefits and ensuring regulatory adherence.
Conclusion
The 2026 tax reform in Cyprus represents a bold and wide-ranging effort to modernize the fiscal system, address social equity, and align with global tax trends, all while preserving Cyprus’s appeal to business and international investors. While not without risks, the reform could reshape the country’s tax landscape for the better, making it more progressive, competitive, and sustainable.
However, much depends on the final form of the legislation, as the six draft bills are still subject to parliamentary debate. The real test will be in implementation: how smoothly the new rules are introduced, whether the promised deductions reach the most people, and how businesses adapt.
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