Cyprus Leads the EU in Tax-Free Income

According to the latest study presented in the Cypriot parliament, the island nation ranks first in the European Union in terms of tax-free income for individuals — €19,500. This figure is significantly higher than in Austria (€12,816), Belgium (€10,910), or Lithuania (€8,964). Such a level makes Cyprus one of the most attractive EU countries for individuals in terms of tax policy.

Two Tax Models in the EU

The parliamentary service study showed that two key models of income taxation prevail in the EU.

1. Progressive system — aimed at social justice and income redistribution, used in France, Germany, Denmark, and Sweden.
2. Flat tax model — with a single rate, applied in Bulgaria, Romania, Estonia, and Hungary, where rates range from 10% to 15%.

Cyprus occupies an intermediate position, maintaining a relatively low tax burden and a simple system convenient for tax residents and foreign investors. However, it is also criticized for lacking strong social targeting.

1. Income up to €19,500 — tax-free.
2. €19,501 to €28,000 — taxed at 20%.
3. €28,001 to €36,300 — taxed at 25%.
4. €36,301 to €60,000 — taxed at 30%.
5. Income above €60,000 — taxed at the maximum rate of 35%.

Tax Rate Differences Across the EU

In 2025, the highest personal income tax rates were recorded in:

1. Finland (59.3%),
2. Austria (55%),
3. Sweden (52.4%),
4. France (49%, including the additional surcharge on high incomes).

On the opposite end are:

1. Bulgaria and Romania (10%),
2. Hungary (15%).

These differences reflect varying national priorities: some focus on redistribution and social protection, others on competitiveness and attracting capital.

Allowances and Exemptions

Cyprus is also among the countries where tax legislation includes fewer social and demographic adjustments. For example:

1. In Greece, Czechia, and Slovenia, additional tax relief is available for large families.
2. In Hungary, mothers with four or more children are permanently exempt from income tax.

By contrast, Cyprus maintains a more universal, less flexible system. Nevertheless, the high tax-free threshold and simplicity of rules make it attractive for business and private investors, especially combined with favorable corporate tax rates and special regimes for foreign workers.

Growing Debate on a Wealth Tax

The European Commission’s 2024 tax report emphasized that growing wealth inequality increases pressure on governments to introduce wealth taxes.

1. Spain already applies a net wealth tax.
2. France and Belgium have special levies on real estate and luxury assets.

In Cyprus, such initiatives are currently absent. However, economists note that the debate on fair redistribution may intensify in the coming years, especially amid growing interest in real estate investments and rising housing prices.

Cyprus continues to maintain one of the most favorable tax positions in the EU, with the highest tax-free threshold and a low burden on individuals. This allows the island to attract new tax residents and investors, reinforcing its reputation as an appealing jurisdiction — despite challenges in the area of social fairness.