By: BLegal – Panayiotou Shamma LLC
Overview of the Proposed Tax Reforms in Cyprus: Key Changes and Implications
Cyprus is undergoing its most significant tax reform in over two decades, aiming to modernize its fiscal framework, enhance competitiveness, and align with international standards. The proposed measures, announced in February 2025, are currently under public consultation and expected to be implemented by 2026. Below is an overview of the proposed key changes and their potential implications for businesses, individuals, and the broader economy.
Key Changes in the Proposed Tax Reform
Corporate Taxation
Increase in Corporate Tax Rate: The corporate income tax rate will rise from 12.5% to 15%, aligning Cyprus with the OECD’s global minimum tax initiative. Despite the increase, Cyprus will maintain one of the lowest corporate tax rates in Europe, ensuring continued attractiveness for international businesses.
Abolition of Deemed Dividend Distribution (DDD): The complex deemed dividend distribution rules will be eliminated, simplifying compliance for companies.
Extended Tax Loss Carryforward: Companies will be able to carry forward tax losses for up to 10 years (up from 5 years), subject to conditions.
Special Defence Contribution (SDC)
Reduction on Dividends: The SDC rate on dividends will drop from 17% to 5% for Cyprus-domiciled and tax-resident individuals.
Abolition of SDC on Rental Income: Rental income will be taxed under personal or corporate income tax rather than SDC.
Personal Income Tax
Higher Tax-Free Threshold: The tax-free threshold will increase from €19,500 to €20,500, providing relief for low-income earners.
Revised Tax Bands:
€20,501–€30,000 taxed at 20%.
€30,001–€40,000 taxed at 25%.
€40,001–€80,000 taxed at 30%.
Above €80,000 taxed at 35% (up from the previous threshold of €60,000).
New Deductions: Proposed incentives include deductions for dependent children, first-time homebuyers or renters, and green household upgrades.
Other Notable Changes
Stamp Duty Adjustments: Stamp duty will apply only to agreements related to real estate transactions, banking, and insurance contracts.
Green & Digital Investment Incentives: Companies investing in environmentally friendly or digital transformation projects may qualify for enhanced deductions or accelerated depreciation.
Non-Domicile Status: The non-dom regime remains unchanged but may be extended beyond the current 17-year limit with an annual fee.
Implications of the Proposed Reform
Impact on Businesses
Competitiveness:
Despite the proposed corporate tax increase to 15%, Cyprus will remain competitive due to its favourable business environment and extensive double tax treaty network. The reform will align Cyprus with global standards while preserving its appeal as a hub for international businesses.
Simplified rules like the abolition of DDD will reduce administrative burdens for companies operating in Cyprus.
Tax Planning Opportunities:
Extended loss carryforward periods shall provide flexibility for businesses facing fluctuating profits.
Green investment incentives will encourage environmentally sustainable practices while offering financial benefits.
Impact on Individuals
Tax Relief for Lower-Income Earners:
The proposed increase in the tax-free threshold and revised tax bands are expected to ease the burden on low and middle-income earners while reallocating more responsibility to higher-income groups.
New deductions aim to promote family welfare and sustainability initiatives.
Attractiveness for Expats and High Earners:
Maintaining the non-dom regime will ensure Cyprus continues to attract foreign executives and wealthy individuals seeking favourable tax treatment.
Conclusion
The proposed Cyprus Tax Reform represents a balanced approach to modernizing the country’s fiscal framework while maintaining its competitiveness as a business-friendly jurisdiction. By increasing corporate taxes modestly and introducing targeted personal tax reliefs alongside green investment incentives, Cyprus aims to foster economic growth while ensuring fairness in taxation.
For businesses and individuals operating in Cyprus or considering relocation, these changes present opportunities for strategic tax planning. As the reform progresses through legislative approval, stakeholders should seek professional advice to optimize their positions under the new regime.
At BLegal – Panayiotou Shamma LLC, we’re committed to helping you navigate these changes and optimize your tax strategy. Whether you’re a local business or an international investor, our team is here to provide expert guidance.
