📢 Cyprus Tax Reform 2026 | A New Tax Landscape

On the 22^nd of December 2025, Cyprus’s Parliament passed a major tax reform package, the first comprehensive tax reform in more than 20 years. The new laws came into force on 1 January 2026 and will apply to tax year 2026 onward. Below you will find the summary of the provisions.

Personal Income Tax Changes

Higher tax-free threshold

• Income up to €22,000 is tax-free for individuals.

• Revised progressive tax brackets:

  o  €22,001–€32,000 — 20%

  o €32,001–€42,000 — 25%

  o  €42,001–€72,000 — 30%

  o Above €72,001 — 35%

New Deductions

• Family relief for children and students up to the age of 24:

o   €1,000 for the 1st

o   €1,250 for the 2nd

o   €1,500 for the 3rd and each additional

• Eligibility based on household income ceilings as below:

o   ≤€100,000 for 1–2 children

o   ≤€150,000 for 3–4 children

o   ≤€200,000 for 5+ children

• Deductions for loan interest and rent (up to €2,000)

• Deduction €1,000 for green investments (e.g., electric vehicles)

• The life insurance premium deduction allowance is extended to include insurance premiums for permanent or partial incapacity

• Ex-gratia payments at the beginning or end of employment taxed at 20%, with a €200,000 tax-free allowance when paid due to employment termination

• Other allowable deductions

Mandatory tax returns

All Cyprus tax residents over the age of 25 are required to file tax returns (even if no tax is due)

Audited Financial Statements

The gross income threshold for mandatory submission of audited accounts by individuals is increased from €70,000 to €120,000

Corporate Tax

• Corporation tax increased from 12,5% to 15%

• Dividend and Special Defence Contribution (SDC) changes:

o   SDC on actual dividends distributed decreased from 17% to 5%

o   Deemed Dividend Distribution (DDD) is abolished for profits generated after 1 January 2026

o   SDC on rental income is abolished

o   Withholding tax rate of SDC on interest from government bonds of another EU Member State and

on deposits of the Health Insurance Fund is reduced to 3%

• The deadline for submission of returns and payment of corporate tax is moved to 31 January of the second year following the tax year

Other company-level changes

• Tax loss carry-forward period is increased from 5 to 7 years

• 120% expenses deduction for R&D expenses extended 2030

• Tax allowable entertainment expense increases to €30.000

• Profits from Cryptocurrency are taxed at the flat rate of 8%

• Stamp duty is repealed except for real estate, banking and insurance contracts

Capital Gains Tax

• Lifetime capital gains tax exemptions are revised:

o   the general exemption is increased from €17,086 to €30,000

o   the agricultural land exemption is increased from €25,629 to €50,000

o   the primary residence exemption is increased from €85,430 to €150,000

• Company share disposals now subject to Capital Gains Tax where 20% or more of value derives from Cyprus real estate (previously 50%)

• Disposal of shares listed in non-regulated exchanges are now subject to Capital Gains Tax (€50.000 threshold exemption)

• Primary residence tax exemption allowance increased to €450.000 if carried out as part of loan restructuring

Anti-Evasion & Enforcement Tools

• Low-tax jurisdictions (LTJ) with very low corporate taxes now face:

o   17% withholding tax on dividends

o   interest and royalty payments restricted for tax purposes

• EU blacklisted jurisdictions — existing rules on WHT for dividends, interest, royalties are clarified and expanded

• Tax authorities have been granted expanded audit, collection and administrative penalty powers to enhance compliance and counter anti-avoidance:

o   Right to request 6-year capital statement

o   Authority to obtain banking records directly from Cyprus-based banks

o   Authority to seal businesses for non-compliance

o   Authority to freeze shares for tax debts exceeding €100,000

For any questions or further information, please feel free to contact our team at info@pelaghiaslaw.com