The Cyprus Tax Department continues to tighten enforcement of tax compliance. According to its 2025 annual results, the department identified 513 major tax debtors who collectively owed the state €44.1 million. These taxpayers were classified as high-risk and became the focus of a dedicated debt recovery programme.
The campaign targeting major tax defaulters has now been running for a second consecutive year. During this period, the authorities have recovered almost €99.5 million from more than 1,000 large taxpayers, making it one of the most successful tax enforcement initiatives in recent years.
More Than 500 Major Tax Debtors Targeted
Of the 513 debtors identified, 396 individuals and companies owed €37.9 million in direct taxes. A further 117 taxpayers had outstanding VAT liabilities amounting to €6.2 million. The debts included unpaid income tax, capital gains tax, the Special Defence Contribution, and VAT. The average outstanding debt amounted to approximately €86,000 per taxpayer.
The Tax Department says the tougher enforcement measures are aimed at improving tax collection and reducing budget losses amid rising government expenditure and continued economic growth.
Large-Scale Business Audits
The campaign against major debtors formed only part of a much broader tax enforcement programme carried out throughout 2025. VAT inspections were conducted at 1,236 companies across the island, resulting in additional tax assessments totalling €32.4 million. At the same time, investigators examined 73 cases involving tax fraud, leading to a further €4.1 million in additional tax assessments.
Another focus of the department's work was verifying the source of individuals' capital. Financial records from 1,067 taxpayers were reviewed, resulting in the recovery of an additional €3.1 million.
In addition, the Tax Department analysed the financial statements of approximately 18,000 businesses. These audits resulted in an extra €75.3 million in tax assessments. Overall, inspections, tax fraud investigations, and financial reviews led to additional tax assessments totalling €115 million affecting 20,338 individuals and legal entities.
Audits of Reduced VAT on Housing
The authorities also focused on the reduced VAT scheme for the purchase or construction of a primary residence. Cyprus offers a reduced VAT rate of 5% for individuals buying property as their permanent home. However, inspections revealed that some property owners had improperly claimed the benefit. During the year, 1,715 inspections were carried out, identifying 93 individuals who did not meet the eligibility requirements. As a result, they were ordered to repay €11.5 million to the state.
An additional 214 taxpayers voluntarily disclosed breaches of the scheme and paid a further €9.3 million in VAT. Inspectors found that many homeowners who had benefited from the reduced VAT rate later rented out their properties through short-term rental platforms such as Airbnb and Booking.com or used them as holiday homes rather than permanent residences. In such cases, property owners are required to pay the remaining 14% VAT in addition to the 5% already paid, bringing the total VAT rate up to the standard 19%.
To improve tax compliance, the department is making increasing use of advanced data analysis techniques. During the reporting period alone, around 12,430 compliance notices were issued to individuals and businesses. Officials note that digitalisation enables authorities to identify discrepancies more quickly between tax returns, banking transactions, and the actual use of properties.
Tax Debt in Cyprus Reaches €4.64 Billion
Despite the intensified collection efforts, Cyprus' total tax debt continues to rise. By the end of 2025, outstanding tax liabilities had increased by €700 million to reach €4.64 billion, compared with €3.93 billion a year earlier.
Tax debt subject to immediate collection before enforcement measures amounted to €3.32 billion in December 2025, compared with €2.59 billion the previous year. This figure already includes accrued interest and penalties. Notably, around 60% of these debts are relatively recent: 29.5% are less than one year old, while a further 29.9% are between one and four years old.
The Government Is Intensifying Debt Collection
Against the backdrop of rising tax debt, the authorities are expanding the use of compulsory enforcement measures. In 2025, tax liabilities under active recovery procedures reached €901.5 million, compared with €729.8 million in 2024. The volume of recoverable debt before measures such as bank account seizures also increased significantly, reaching €2.42 billion in December 2025, compared with €1.63 billion a year earlier.
Experts believe that the Cyprus Tax Department will continue expanding its use of digital monitoring tools, automated analysis of financial transactions, and data sharing between government agencies in the coming years. These measures are expected to make it even easier to detect tax evasion and abuses of preferential tax schemes.
Against the backdrop of rising property prices, growing numbers of international investors, and the continued expansion of the short-term rental market, government oversight is becoming increasingly strict. As a result, both property owners and businesses are advised to pay close attention to tax compliance, as the likelihood of violations being detected is now significantly higher than it was just a few years ago.