Cyprus Tax Reform: What Changes from 1 January 2026

The Cyprus tax reform package has been approved by the House of Representatives, marking a substantial update to the country’s tax framework for individuals, families, investors and businesses.

The reform introduces a new personal income tax scale, enhanced family and student tax deductions, important changes to corporate taxation, and a broader modernisation of the tax system. The new rules will apply from 1 January 2026, making 2025 a key planning year for taxpayers and businesses alike.

Overview – Key changes at a glance

• Effective date: 1 January 2026 – the existing tax framework continues to apply during 2025.
• New personal income tax brackets, with a tax-free threshold of €22,000 and a top rate of 35%.
• Enhanced tax deductions for families and students, granted per parent, subject to income thresholds.
• Major corporate tax changes, including a 15% corporate tax rate and the abolition of deemed dividend distribution.
• System modernisation measures, promoting transparency and alignment with international practices.

What has changed since our initial Rightax publication

In our initial article (March 2025), we presented the proposed framework of the tax reform. Since then:

• the core legislative package has been approved by Parliament,
• amendments refining specific provisions have also been adopted,
• the implementation date remains 1 January 2026.

What changes from 1 January 2026

The reform affects both individual taxpayers and companies. Below is a structured overview of the main provisions that have been finalised.

Personal income tax – key points

New personal income tax brackets

• income up to €22,000: 0% (tax-free)
• €22,001 – €32,000: 20%
• €32,001 – €42,000: 25%
• €42,001 – €72,000: 30%
• income above €72,001: 35%

The above rates apply progressively and replace the existing tax brackets. The current personal income tax rates remain applicable until 31 December 2025.

👉 To view the current personal income tax rates (up to 2025), click here.

Family tax deductions

Tax deductions for dependent children are granted per parent and are applied on a cumulative basis:

• 1st child: €1,000 per parent
• 2nd child: €1,250 per parent
• 3rd and each additional child: €1,500 per parent

These deductions are subject to annual family income thresholds:

• up to €100,000 for families with 1–2 children
• up to €150,000 for families with 3–4 children
• up to €200,000 for families with 5 or more children

Housing-related tax deductions

• Primary residence rent: tax deduction up to €1,500 per year
• Mortgage interest on primary residence: tax deduction up to €2,000 per year
• Selected energy-efficiency expenses (e.g. home energy upgrades): tax deduction up to €1,000

The above deductions will apply subject to income criteria, which are expected to be further clarified through implementing guidance.

Students – personal tax deductions

• deductions apply per parent,
• age limits: up to 23 years (female students) and 24 years (male students),
• amounts follow the same progressive structure as for children:
  • 1st student: €1,000
  • 2nd student: €1,250
  • 3rd and each additional student: €1,500

Corporate taxation – key points

• Corporate income tax rate increased to 15% from 1 January 2026.
• Abolition of deemed dividend distribution (DDD) for profits earned from 2026 onwards.
• Reduction of Special Defence Contribution on actual dividends from 17% to 5%.
• Abolition of Special Defence Contribution on rental income.
• Full abolition of stamp duty on contracts and transactions.
• Taxation of crypto-asset disposal gains at a flat rate of 8%, where included in taxable income.
• Extension of tax loss carry-forward period from 5 to 7 years.
• Extension of R&D tax incentives for intangible assets until 2030.
• Increase of allowable entertainment expenses to €30,000 for tax purposes.
• Taxation of employee stock options at a flat rate of 8%, under approved schemes.

Is the reform in force now?

Although the legislation has been approved, the new tax rules will apply from 1 January 2026. Until then, the existing tax framework remains in force.

What should individuals and businesses do now?

With 2026 approaching, proactive planning is strongly recommended:

• assess the potential impact of the new rules on income and structures,
• review dividend and remuneration strategies,
• evaluate family, housing and personal tax deductions in advance.

How Rightax can support you

Rightax provides tailored tax and business advisory services to help individuals, investors and companies prepare smoothly and confidently for the new Cyprus tax framework.

Contact us for a personalised review and forward-looking tax planning.

Reach out for expert help with tax, accounting, audit, or company setup in Cyprus.

+357 99 108 510

[email protected]