Cyprus Parliament Approves Comprehensive Tax Reform
The Cyprus Parliament has approved a comprehensive Tax Reform, which will come into force as of 1 January 2026, introducing important changes to personal income taxation, salary structures, and available tax deductions. The reform aims to provide targeted tax relief, support families, encourage sustainable investments, and modernise the tax framework.
Below is a practical overview of the key changes and their impact.
1. Increase of the Tax-Free Threshold
One of the most significant changes is the increase of the tax-free income threshold from €19,500 to €22,000, applicable from the 2026 tax year onwards. This adjustment provides immediate relief to employees and individuals with lower and middle incomes.
2. New Personal Income Tax Brackets
As of 2026, the personal income tax rates will be applied as follows:
- €0 – €22,000: 0%
- €22,001 – €32,000: 20%
- €32,001 – €42,000: 25%
- €42,001 – €72,000: 30%
- Above €72,000: 35%
These revised brackets slightly shift the tax burden while maintaining Cyprus’ competitive personal tax framework.
3. Family-Based Tax Deductions (Gross Family Income Criteria)
The reform introduces additional tax deductions based on Gross Family Income (combined income of spouses), provided the income does not exceed the following thresholds:
- Up to €100,000: Families with no children or up to two (2) children
- Up to €150,000: Families with three (3) or four (4) children
- Up to €200,000: Families with five (5) or more children
4. Enhanced Support for Single Parents
Single parents benefit from double deductions per dependent child, subject to the same Gross Family Income criteria.
Indicatively, a single parent with three children may benefit from deductions of up to €7,500, provided the income threshold is not exceeded.
5. Child Tax Deductions (Per Parent)
Each parent is entitled to the following deductions for dependent children:
- €1,000 for the first child
- €1,250 for the second child
- €1,500 for the third and each additional child
A child is considered dependent if they are:
- Under 18 years old
- A student under 24 years old
- In military service (under 21)
- Permanently incapable of self-support (regardless of age)
6. Housing Loan Interest or Rent Deduction
Each spouse may claim a tax allowance of up to €2,000, subject to income criteria, for:
- Interest on a serviced housing loan for the purchase or construction of a main residence in Cyprus, or
- Rent paid for the use of a main residence in Cyprus
7. Incentives for Green Investments
To promote sustainability, the reform introduces a deduction of up to €1,000 per spouse for qualifying capital expenditures, including:
- Energy efficiency upgrades to the main residence
- Renewable energy systems and electricity storage batteries
- Purchase of an electric vehicle registered in Cyprus
8. Insurance of Residences Against Natural Disasters
A new deduction (without income criteria) is introduced for insurance premiums paid to insure residences in Cyprus against natural disasters (e.g. fire, earthquake, flood), up to €500 per tax year, applicable from 1 January 2026.
9. Abolition of Special Defence Contribution on Rental Income
As of 1 January 2026, the Special Defence Contribution (SDC) on rental income is abolished. Rental income will continue to be subject to income tax and GHS contributions, simplifying the overall tax treatment.
Conclusion
The Cyprus Tax Reform 2026 introduces meaningful relief for families, single parents, employees and property owners, while reinforcing incentives for sustainability and home ownership. Employers and payroll departments should prepare in advance to ensure proper implementation, while individuals should assess how the new deductions and thresholds affect their personal tax position.
For tailored advice or assistance with tax planning, payroll restructuring, or compliance under the new regime, professional guidance is strongly recommended.
