The Cypriot Parliament has approved a package of systemic changes to the taxation of individuals and companies, already being described as the most comprehensive tax reform since the early 2000s. The new rules will be introduced gradually from 2026 and will affect virtually all taxpayers—from families with children to international businesses. The reform combines a strong social focus with revised tax rates, an expanded tax base, and significantly stronger tax administration. Authorities stress that the changes are aligned with EU-wide initiatives on tax transparency and the fight against tax evasion.
Changes for Individuals and Families
The key development for individuals is a substantial increase in the tax-free allowance. From 2026, personal income tax will be calculated as follows:
- income up to €22,000 will be tax-free;
- €22,001–32,000 will be taxed at 20%;
- €32,001–42,000 at 25%;
- €42,001–72,000 at 30%;
- income above €72,001 at 35%.
At the same time, targeted tax deductions are being introduced to support families and sustainable development. Additional deductions of €1,000–1,500 per person will apply for children and students, as well as deductions for rent and interest on mortgage and other housing loans of up to €2,000 per year.
The state is also encouraging environmentally friendly choices. Investments in “green” projects—including the purchase of electric vehicles and improvements in home energy efficiency—will qualify for deductions of up to €1,000. Property insurance against natural disasters will also be incentivized, with deductions of up to €500.
Eligibility for family-related deductions will depend on total household income. Families with one or two children will qualify for benefits with income up to €100,000, families with three or four children up to €150,000, and large families up to €200,000. According to lawmakers, this approach makes support more targeted and reduces the risk of abuse.
New Rules for Businesses, Investors, and Shareholders
For companies, the reform brings both a higher tax burden and new optimization opportunities. Corporate income tax will increase from 12.5% to 15%. At the same time, the deemed dividend distribution rule for profits earned after 1 January 2026 will be abolished, which is particularly important for holding and international structures.
Taxation of actually distributed dividends will become more favorable: the defence contribution will be reduced from 17% to 5%. In addition, the carryforward period for tax losses will be extended from 5 to 7 years, and the deduction limit for representation expenses will increase to €30,000, partially offsetting the rise in corporate tax. The defence contribution on rental income will be fully abolished, as will stamp duty, reducing administrative costs related to transactions and documentation.
For the first time, a separate tax on profits from transactions involving crypto-assets and share options will be introduced, at a rate of 8%. This step reflects the government’s intention to legalize and structure the taxation of digital and investment instruments that previously operated in a grey area.
Stronger Tax Control and Digitalization
Alongside tax relief measures and rate changes, the reform significantly strengthens the role of the tax authorities. Expanded digital reporting, more active data exchange with banks and other public bodies, and an increase in tax audits are expected. Cyprus aims to improve tax collection and reduce the shadow economy, in line with EU requirements and international standards.
Overall, Cyprus’s new tax model is designed to promote social fairness and support families, while simultaneously increasing demands for business transparency and income disclosure. For individuals, this means lower tax pressure on basic income and access to new deductions; for companies, it requires adaptation to stricter administration and updated rules. In the long term, authorities expect the reform to strengthen public finances, boost investor confidence, and make Cyprus’s tax system more resilient and modern.