Tax overhaul sets in motion as of January 1, 2026 - Unveiling potential modifications
In a significant move towards modernizing the tax system, President Nikos Christodoulides has confirmed the implementation of the Cyprus tax reform package, set to commence on January 1, 2026. The reforms aim to improve fairness, support families, and align with international standards.
During a high-level meeting at the Presidential Palace, discussions focused on finalising the details of the tax transformation. Christodoulides reaffirmed his commitment to adhering strictly to the timeline, stating that there will be no exception to the scheduled implementation date. The meeting marked the final gathering related to the reform, as the President confirmed that all issues have been concluded.
The tax reform proposals encompass up to 50 legislative amendments, designed to lower tax burdens for households and businesses, encourage growth, and improve competitiveness while restoring fairness. The law is being developed in close collaboration with the University of Cyprus Economic Research Centre and finance ministry experts, with ongoing consultations involving business associations and political parties to ensure timely parliamentary approval before the January 2026 deadline.
On the personal income tax front, the tax-free threshold will increase to €20,500, easing the tax burden on lower-income earners. Income tax brackets will be revised, with the highest tax rate of 35% now applying to income over €80,000. Additional tax relief will be provided based on family composition, mortgage costs, and investments in green home upgrades. Parents will benefit from extra tax-free amounts, such as an additional €1,000 for each dependent and €1,500 tax-free income for purchasing or renting their first home, as well as €1,000 for each green investment made by a parent.
Corporate tax reforms include a rise in the corporate tax rate from 12.5% to 15% to align with the OECD’s global minimum tax framework. The current "deemed dividend distribution" mechanism will be abolished, simplifying corporate taxation. The withholding tax on actual dividend payouts will be decreased significantly from 17% to 5%, enhancing incentives for foreign investors and holding companies.
Financial penalties for tax violations, including failing to file tax returns, will be increased to strengthen enforcement, as current fines are considered too low to deter violations.
The President, alongside the Minister of Finance, will brief political parties on the tax reform proposals, followed by a meeting to discuss and agree upon any unresolved matters related to the tax reform. The tax reform package discussions were convened by the Presidency, and the tax reform legislative proposals are intended to be submitted to Parliament without delay.
In summary, the Cyprus 2026 tax reforms focus on broad tax relief for individuals and families, a corporate tax rate increase aligned with international standards, enhanced tax fairness and enforcement, and incentives for sustainable investments. The government is committed to implementing these changes fully from January 1, 2026.
During the meeting at the Presidential Palace, it was confirmed that the tax reform, developed collaboratively with the University of Cyprus Economic Research Centre and finance ministry experts, will include significant amendments to personal and corporate taxes. These amendments, aligned with the EU and international standards, aim to lower tax burdens for households and businesses, improve competitiveness, and provide added incentives for families and foreign investors, as the implementation date remains unchanged: January 1, 2026.
