Cyprus is set to undergo its first major tax reform in over 20 years with changes expected to align the system with the country’s evolving economic landscape.

The proposed reforms would establish a revised progressive tax system, significantly altering the current structure while raising the threshold at which the highest tax rate applies.

Key Tax Reform Updates

1. Corporate Income Tax (CIT) increase

Increase in the corporate tax rate from 12.5% to 15% in alignment with OECD’s global tax framework.

• Special Defence Contribution (SDC) Overhaul
• Reduction of SDC rate on actual dividend income from 17% to 5%, with an anti-avoidance measure to provide for an SDC rate higher than 5% in cases of ‘concealed dividends’
• Abolition of SDC on rental income

• Personal Income Tax Relief
• Increase in the tax-free income threshold by €1.000, raising it to €20.500, adjustment of tax brackets, and shifting the highest tax rate of 35% to taxable income exceeding €80.000.

Revised Tax Brackets and Rates:

Taxable Income	Tax Rate
€0 – €20.500	0%
€20.501 – €30.000	20%
€30.001 – €40.000	25%
€40.001 – €80.000	30%
€80.001 and above	35%

Current Tax Brackets and Rates:

Taxable Income	Tax Rate
€0 – €19.500	0%
€19.501 – €28.500	20%
€28.501 – €36.300	25%
€36,301 – €60.000	30%
€60.001 and above	35%

1. Household based deductions – Tax benefits for families, students, mortgages and green home investments

For households with two working partners/spouses with a total gross income of up to €80.000:

1. €1.000 for each spouse/partner per child (under 19 (F)/21 (M) years old).

2. €1,.000 for each spouse/partner per student (up to 23 (F)/25 (M) years old).

3. Up to €1.500 per spouse/partner for mortgage loan installments or rent for the primary residence.

4. Up to €1.000 per spouse/partner for green household upgrades in the year the upgrade is made, e.g. up to 5 years (e.g. energy upgrades of homes, installation of photovoltaic systems, heat pumps, electric cars, etc.).

5. Single-parent families will be classified under the most favorable scenario (as families with two working parents).

• Strengthened Tax Residency Rules for Companies
• Strengthening the tax residency criteria for companies based on control and management.
• Implementation of a framework for intangible assets (IP Box).

• End of Deemed Dividend Distribution (DDD)

Full abolition of Deemed Dividend Distribution provisions

• Tackling “Closely Held Companies”
• Ability to lift the corporate veil and tax shareholders as individuals conducting business
• Ability to adjust salaries to reflect market rates

• Incentives for Green & Digital Investments
• Super tax deductions for green projects, digital transformation and upskilling employees
• Accelerated depreciation for eco-friendly and tech investments

• Tax Residency for Individuals: Stricter Rules

Retention of the 183-day rule and strengthening of the 60-day rule by requiring a business center of activity in Cyprus

• Non-Domiciled (Non-Dom) Regime Adjustments

Retention of non-dom regime with extensions and the imposition of an annual fee