Global Daily Tax News, Cyprus Implements Tax Reform Law, (Jan 2, 2026)

Cyprus's Ministry of Finance has welcomed the entry into force, on January 1, 2026, of the newly passed tax reform law.

The tax reform includes an increase to the corporate income tax rate from 12.5 percent to 15 percent, and an extension to the loss carryforward period from five years to seven years with added conditions (a ten-year period was initially proposed).

The special defence contribution rate for dividends income received by Cypriot tax resident or domiciled individuals has been lowered from 17 percent to five percent, and the deemed dividend distribution rules have been abolished.

Personal income tax bands have been revised, establishing a new EUR72,000 bracket for the top, 35-percent income tax rate, up from EUR60,000, and lower than the EUR80,000 initially proposed, and an increase to the personal income tax-exempt threshold to EUR22,000, up from EUR19,500 – higher than the initially proposed level of EUR20,500.

The existing 20-percent rate of personal income tax now applies to income above the tax-exempt threshold to EUR32,000, up from GBP28,000 (original proposal: EUR30,000); the 25-percent rate applies therefrom on income up to EUR42,000, up from EUR36,300 (original proposal: EUR40,000); and the 30-percent rate applies to income until the 35-percent rate applies, on income up to EUR72,000 (original proposal: EUR80,000).

The reform package also considerably alters the tax relief measures available for households with children, and raises capital gains tax allowance to EUR30,000 for general land sales, to EUR50,000 for agricultural plots, and to EUR150,000 for primary residences. It also includes numerous tax enforcement-related measures.

The Ministry said, "The implementation of the new tax framework from January 1, 2026, will undoubtedly strengthen the sense of social justice, through the alleviation of tax burdens by adopting balanced reliefs for both citizens and businesses."

"The new framework is expected to effectively support families, especially those with children and students, the effort for a green transition of households, as well as the State's housing policy, through the granting of discounts for housing and green spending."