Cyprus overhaul of tax system comes into force

Cyprus’ revamped tax framework for businesses and individuals took effect on January 1, 2026, following the passage of the government’s tax reform package by parliament late last month.

The House plenary approved the reform on December 22, voting through five of the six bills submitted by the executive after amendments introduced during deliberations at the Parliamentary Finance and Budget Committee.

The legislation was published this week in the official gazette, according to a circular issued by the Employers and Industrialists Federation (Oev), formally clearing the way for implementation.

Oev said it had played an active role in shaping the final amendments, both during the public consultation phase and the article-by-article discussions in committee.

Its involvement, the federation noted, was guided by the objective of supporting the Cypriot economy through tax reform, strengthening business competitiveness and preserving the country’s appeal to foreign investors.

Among the most significant changes is the increase in corporate income tax to 15 per cent from 12.5 per cent.

At the same time, the withholding tax on actual dividend distributions is reduced sharply, to 5 per cent from 17 per cent, while deemed dividend distribution is abolished entirely.

The reform also removes the stamp laws in full.

Further provisions introduce extended liability for company directors, covering the full period during which they held office, even after resignation.

In addition, the concession of land plots for subdivision purposes will now be treated as consideration for tax purposes.

The package also provides for a reduction in the special defence contribution on interest income from bonds issued by companies listed on the ‘New Market’ of the Cyprus Stock Exchange (CSE), lowering the rate to 3 per cent from 17 per cent.

Measures are included to grant a notional deduction to companies that implement the automatic cost-of-living adjustment (CoLA), alongside the introduction of procedures to block shares in cases involving outstanding tax debts.

On the personal taxation side, the reform makes the submission of tax returns mandatory for all Cyprus tax residents over the age of 25, irrespective of whether a tax liability arises.

Income tax bands for individuals are also revised. Income up to €22,000 will remain tax-free, while rates are set at 20 per cent for income between €22,001 and €32,000, 25 per cent between €32,001 and €42,000, 30 per cent between €42,001 and €72,000, and 35 per cent for income above €72,001.

Additional deductions are introduced, covering expenses such as children, home insurance and mortgage interest.

The federation said it would “continue to monitor the implementation of the reform closely and keep its members informed of any further clarifications, regulatory acts or interpretative circulars issued by the competent authorities.”