On 26 February 2025, the Economics Research Centre at the University of Cyprus presented the proposed Cyprus tax reform. The proposal is expected to be assessed by the Ministry of Finance and then to be submitted to the Council of Ministers for approval, before the draft bills are ultimately filed with the House of Representatives for voting. It is also expected that public consultation will take place as part of the process.
INDIVIDUALS
Tax Brackets & Rates
One of the main changes for individuals is the increase in the tax-free income threshold by €1.000, adjusting the tax brackets and shifting the highest tax rate of 35% to taxable income exceeding €80.000.
Current Tax Brackets:
| 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% |
Proposed Tax Brackets & Rates:
| Taxable Income | Tax Rate |
| €0 – €20.500 | 0% |
| €20.501 – €30.000 | 20% |
| €30.001 – €40.000 | 25% |
| €40.001 – €80.000 | 30% |
| Up to €80.000 | 35% |
The new proposal offers further tax deductions based on household income criteria, with 2 working spouses with a total gross income of up to €80.000
- €1.000 for each spouse/ partner per child
- €1.000 for each spouse/partner per child (under 19 (F)/21 (M) years old).
- €1,.000 for each spouse/partner per student (up to 23 (F)/25 (M) years old).
- Up to €1.500 per spouse/partner for mortgage loan installments or rent for the primary residence.
- 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.).
- Single-parent families will be classified under the most favorable scenario (as families with two working parents).
Retention of Benefits for Cyprus Tax Residents
- Taxation of worldwide income with applicable exceptions and deductions.
- Deduction of expenses incurred to generate taxable income.
- Notional Interest Deduction (NID) on new equity capital.
- Favorable shipping regime, including a 50% tax exemption for first-time employment in Cyprus.
- Tax exemption on profits from the sale of securities.
Tax Residency Criteria
- Maintenance of the 183- day rule, and solidifying the 60-day rule.
- Introduction of an additional test that encompasses individuals with a business center of activity in Cyprus without the need of a physical presence in Cyprus
- Addressing dual tax residency issues in accordance with the Double Taxation Avoidance Agreement.
COMPANIES
- Increase of Corporation Tax from 12.5% to 15%
- Abolition of Deemed Dividend Distribution
- Complete abolition of the above regime, with the implementation of a 5% withholding tax on actual dividend distribution for Cyprus Tax Residents who are also domiciled in Cyprus
- An introduction of an anti-avoidance clause, imposing a higher withholding tax rate of above 5% for disguised dividend distributions. Similar in concept with the Estonian model
- Tax Residency Criteria for Companies
- Imposing further control and management to strengthen tax residency criteria
- Adoption of intangible assets framework (IP Box)
- Special Contribution for Defence (SDC)
- Abolition of SDC on Rental Income
- Reduced SDC on dividends from 17% to 5%
- The current 17-year non-domicile SDC exemption remains, with an option to extend for a fee
- Anti -Avoidance Measures for “Closely Held Companies”
- Authority to lift the corporate veil and tax shareholders as individuals engaged in business activities
- Capability to adjust salaries to align with market rates.
- Taxation of Cryptocurrency Profits
- Profits from crypto trading will be taxed if deemed to be of a revenue nature.
- Extension of Loss Carried Forward for up to 10 years (currently 5 years).
- Abolition of 1.5% Insurance Premium Tax
- Implement tax depreciation on used buildings
- The proposed scheme is to calculate depreciation on the new purchase costs, as well as offer an opportunity for a renewal of the depreciation period for buildings upgraded to green energy standards.
- Green and digital Transformation
- Enhanced deduction proposal on expenses and depreciation, accelerated depreciation, and deductions for skill development and employee restraining.
- Losses incurred from these initiatives, may be carried forward indefinitely.
EXPECTED IMPLEMENTATON:
02-03/2025: Drafting Legislation
03-04/2025: Finalisation of Tax Reform Proposal
07/2025: Final Report
1/09/2025: Submission of Proposed Revised Legislation to the Parliament
