According to the latest quarterly report from the Tax Department submitted to Parliament, Cyprus experienced a significant rise in outstanding tax debts in 2025. Tax Commissioner Sotiris Markidis revealed that, in the first quarter of this year, the total amount of tax debt — including direct taxes and VAT — exceeded €4 billion. In the same period of 2024, this figure stood at €3.1 billion.
Direct taxes and VAT debt structure:
Direct tax arrears from 320,200 individuals totalled €3.4 billion, while VAT arrears amounted to €656.6 million. Of the total tax debt of €4.1 billion, €1.6945 billion was collected without legal action and €1.6925 billion was collected using new collection tools. Of this amount, €3 billion was taxes, €772.3 million was accrued interest and €287.5 million was penalties and additional charges.
Problem of irrecoverable debts
A separate issue is that of debts which are virtually impossible to collect. According to the tax service's estimates, approximately 75% of direct tax debts — equivalent to €1.9 billion of the total of €3.4 billion — have an extremely low chance of being repaid.
In addition, €867.6 million is tied up in appeals and legal proceedings, including disputes over income tax, defence tax and property tax. A further €665.3 million is accounted for by bankruptcies and liquidations, where recovery is impossible.
Legal measures and account seizures
Part of the debt is already in the enforcement stage:
- €28.4 million is under an instalment payment agreement.
- €365.4 million is in the process of legal proceedings.
- €603.7 million is already subject to the tax authority's new powers, including the imposition of encumbrances on real estate and the seizure of funds in bank accounts.
A total of €2 million is currently held in bank accounts pending final collection.
VAT debts
Of the total VAT debt (€656.6 million), €454.4 million relates to the main tax, €152 million relates to interest and €50.2 million relates to penalties. The report states that, due to the transition to a new digital VAT system (TFA), a complete list of debtors for this tax is not yet available.
Risks to the budget and forecast
The accumulation of tax debts poses serious risks to Cyprus's budget, particularly given rising public spending and an economic slowdown. The authorities are stepping up enforcement measures, including expanding court proceedings, seizing assets and electronically monitoring bank accounts. However, economists warn that, without systemic reforms and the simplification of procedures, taxpayers will continue to accumulate debt and that the proportion of bad debt could exceed 80% in the coming years.