Overview

In addition to the amendments affecting companies, the Cyprus tax reform introduces a number of changes to the taxation of individuals under the Income Tax Law.

These changes affect:

• the General Anti-Abuse Rule (GAAR)

• the 60-day tax residency rule

• the tax treatment of certain types of income

• the introduction or expansion of personal tax deductions and incentives.

Overall, the amendments aim to strengthen anti-abuse measures while providing additional deductions and incentives for individuals.

General Anti-Abuse Rule (GAAR)

The General Anti-Abuse Rule (GAAR) of the Income Tax Law has been amended to explicitly cover arrangements involving individuals.

Previously, the GAAR was introduced in Cyprus as part of the implementation of the EU Anti-Tax Avoidance Directive (ATAD) and was primarily focused on corporate structures and transactions.

Following the amendment, the GAAR applies to any transaction or arrangement giving rise to income tax, irrespective of whether the relevant income arises in the hands of a company or a natural person.

This amendment strengthens the ability of the Cyprus tax authorities to challenge artificial or abusive arrangements designed to obtain a tax advantage.

Taxation of pensions from overseas services

The threshold for the optional 5% taxation of pensions derived from services rendered abroad has been increased.

The annual pension amount above which an individual may opt for taxation at 5% has increased from:

• €3,420 to €5,000.

Income from termination or cancellation of contracts

Income received by an individual as compensation for the breach, cancellation or early termination of a contract is taxable where the income that would have arisen under the contract would itself have been taxable income.

This clarification ensures that such payments cannot escape taxation simply because the contract was terminated prematurely.

Redemption of units in collective investment schemes

Gains derived by individuals from the redemption of units or shares in collective investment schemes structured as companies will be treated as dividend income.

The profit element is calculated after deducting any capital gains tax already paid in respect of immovable property.

Such redemption does not constitute a disposal of securities, and therefore the securities disposal exemption does not apply.

These provisions apply from 1 January 2026.

However, within the framework of the transitional implementation of the reform, the practical impact of the provision is expected to mainly affect redemptions taking place from 1 January 2031 onwards.

Where the investor is a Cyprus tax resident and domiciled individual, the profit element arising from the redemption is subject to Special Defence Contribution on dividends at the rate of 5%.

For Cyprus tax resident individuals who are non-domiciled, as well as for non-resident investors, dividend income continues to be exempt from Special Defence Contribution.

Personal tax deductions

The reform also introduces or expands several tax deductions available to individuals.

Housing expenses

Tax deductions are introduced for interest expenses or rental expenses incurred for the purpose of acquiring or using a primary residence.

These provisions aim to support households facing housing costs.

Insurance premiums

Tax deductions are extended to include insurance premiums covering permanent or partial incapacity.

Energy efficiency and electric vehicles

Deductions are also available in respect of capital expenditures aimed at improving the energy efficiency of a primary residence as well as expenditure relating to electric vehicles.

These measures are designed to promote environmental sustainability and the green transition.

Provident funds and life insurance

The Income Tax Law also amends certain provisions concerning:

• the deductibility of contributions to provident funds, and

• the tax treatment of life insurance contracts and their redemption.

Insurance against natural disasters

Individuals may claim a tax deduction of up to €500 for insurance premiums paid for the protection of a residence against natural disasters.

Cultural donations

A tax deduction of up to €50,000 is introduced for donations or contributions to certain approved cultural institutions.

Commentary

The personal income tax amendments introduced through the tax reform combine anti-abuse measures with targeted tax incentives.

On the one hand, the extension of the General Anti-Abuse Rule to individuals strengthens the capacity of the tax authorities to address abusive arrangements.

On the other hand, the introduction of additional deductions relating to housing, insurance, cultural contributions and green investments reflects a policy objective of supporting households while encouraging socially and environmentally beneficial spending.

Related Rightax publication

For a broader overview of the Cyprus tax reform and its implications for both companies and individuals, this publication should be read in conjunction with our guide:

👉Corporate tax in Cyprus and Income tax for tax resident individuals