Cyprus' economy continues to demonstrate solid momentum, reflected in higher government tax revenues. According to the Tax Department, total tax collections increased by 5.9% during the period from January to May 2026 compared with the same period last year.
The figures indicate continued strong business activity, robust consumer spending, and healthy corporate financial performance. Experts also note that the tax reform which came into effect on January 1, 2026, has had a significant impact on revenue patterns, as it introduced changes to several tax rates and the system of tax incentives.
VAT and corporate tax drove most of the growth
Value Added Tax (VAT) once again made the largest contribution to the increase in government revenue. During the first five months of the year, VAT collections reached €1.31 billion, compared with €1.23 billion a year earlier. This represents an increase of 6.4%, reflecting continued strong domestic consumption and business activity.
Corporate income tax recorded even stronger growth. Revenue from this category increased by 10.6%, rising from €492.1 million to €544.3 million.
One of the main reasons for this increase was the rise in the corporate tax rate from 12.5% to 15%, which applies to profits earned from the 2026 tax year onwards. The change formed part of Cyprus' broader tax reform aimed at aligning the country's legislation with international standards and the global minimum corporate tax rate.
Why revenue from the Special Defence Contribution increased
Revenue from the Special Defence Contribution (SDC) also increased significantly. Between January and May 2026, the government collected €284.5 million, compared with €219 million during the same period last year. At first glance, this appears surprising, as the tax reform reduced the SDC rate on actual dividends for Cyprus-domiciled tax residents from 17% to 5%, while the Deemed Dividend Distribution regime was abolished entirely.
In addition, rental income is no longer subject to the Special Defence Contribution and is now taxed solely as income. Experts explain that the increase in SDC revenue is likely due to many companies choosing to distribute dividends more actively after the introduction of the significantly lower tax rate.
Capital gains tax revenue also increased
Revenue from capital gains tax recorded more moderate growth of 2.5%. During the first five months of the year, the government collected €93.5 million, compared with €91.1 million during the same period last year. The figures reflect continued activity in the property market and investment transactions, although growth has been slower than in other tax categories.
Not all tax categories recorded positive results. Personal income tax revenue declined to €497.8 million from €507.8 million a year earlier. This is primarily due to the tax reform, which increased the tax-free income threshold, expanded the tax bands, and introduced additional social and environmental tax reliefs. Taxpayers can now claim deductions related to children, rental payments, mortgage interest, home energy-efficiency improvements, and the purchase of electric vehicles.
Revenue from import VAT remained virtually unchanged at €317.8 million. Casino tax revenue also declined, falling to €10.5 million from €12.5 million a year earlier. The sharpest decrease was recorded in stamp duty revenue, which dropped from €18.1 million to €5.2 million. This is because the tax was abolished entirely as part of the tax reform, with the remaining revenue most likely relating to the settlement of obligations arising from transactions completed in previous years.
What the latest figures mean for Cyprus' economy
The increase in tax revenue demonstrates that Cyprus' economy remains resilient despite the substantial changes introduced by the tax reform. Higher VAT and corporate tax collections point to strong business activity and stable consumer demand, while the reduction in the tax burden on individuals reflects the government's intention to support households and encourage long-term investment.
Economists note that budget performance during the second half of 2026 will also depend on the pace of economic growth, the strength of the tourism season, corporate profitability, and businesses' continued adaptation to the new tax framework.