Cyprus Tax Reform 2025: Key Amendments, Expert Commentary, and Business Implications
The Government of Cyprus has approved a landmark tax reform package, marking the most comprehensive overhaul of the Cypriot tax system in more than two decades. The six legislative bills—approved by the Council of Ministers in late October 2025—are now before the House of Representatives for discussion and approval.
At Connor Legal, we summarise the key provisions, their implications for individuals and businesses, and the current parliamentary outlook, based on the latest analysis by both the Ministry of Finance and local economic experts.
Table of Contents
Reform Objectives
The Ministry of Finance describes the reform as “fiscally neutral”, aiming to modernise the system while maintaining stable public finances.
Objective | Description |
Fairer tax distribution | Relief for lower- and middle-income households, with higher tax-free thresholds and expanded deductions. |
Business competitiveness | Measures to modernise the taxation of dividends and digital assets while simplifying compliance. |
Enhanced compliance | Stronger mechanisms against tax evasion and streamlined collection procedures. |
Fiscal balance | Revenue neutrality through offsetting deductions with enforcement and expanded tax bases. |
These measures follow extensive consultation between the Tax Commissioner and industry stakeholders, ensuring a pragmatic approach to reform.
Key Income Tax Changes for Individuals
The reform introduces new tax brackets and deductions intended to support families and reward environmentally sustainable spending.
Revised Income Tax Brackets
Income Range (€) | Tax Rate |
0 – 20,500 | 0% |
20,501 – 30,000 | 20% |
30,001 – 40,000 | 25% |
40,001 – 80,000 | 30% |
Above 80,000 | 35% |
The tax-free threshold increases to €20,500, providing broad-based relief.
Individual Tax Deductions
Deduction Type | Amount (€) | Eligibility / Notes |
Per dependent child or student | 1,000 | Applies to each dependent. |
Single-parent family | 2,000 | Per child. |
Home loan or rental interest (primary residence) | 1,500 | For performing loans or rent payments. |
Energy upgrades / electric vehicles | 1,000 | Carry-forward up to 4 years. |
Insurance premiums (disability & natural disasters) | Up to 500 | Broadened scope beyond life insurance. |
Large family income protection | — | Deductions for households earning ≤ €80,000 (≤ €100,000 for large families). |
Business & Corporate Tax Measures
Fourteen key measures reshape the corporate tax landscape, balancing modest rate increases with meaningful structural relief.
Corporate Tax Framework
Measure | Old Regime | New Regime (2026) |
Corporate income tax | 12.5% | 15% |
Deemed dividend distribution (70% of profits at 17%) | In force | Abolished from 1 Jan 2026 |
Actual dividends | 17% defence contribution | 5% from 2026 |
Loss carry-forward | 5 years | 7 years |
Rental income defence contribution | 3% | Abolished |
Stamp duty | Broad application | Simplified: applies only to real estate, insurance & financial transactions |
Lifetime capital gains exemptions | General €17,086 → €20,000 • Agricultural €25,629 → €30,000 • Primary residence €85,430 → €100,000 | Updated thresholds effective 2026 |
New Special Regimes
Regime | Tax Rate | Scope |
Cryptocurrency transactions | 8% | First-time inclusion of crypto profits in Cypriot tax law. |
Employee stock-option schemes | 8% | Incentivises innovation and employee participation. |
Ex-gratia / termination payments | 20% | First €200,000 exempt; deductible to employer. |
Non-Domicile framework | — | Maintained 17 years + possible 5 + 5 year extension with €250,000 lump-sum payment per period. |
Key Amendments and Clarifications
Provision | Original Proposal | Current Status |
Automatic tax residency test | Based on “centre of economic interests” | Removed |
Directors’ remuneration taxed personally | Lifted corporate veil | Removed |
Deductibility limited to “necessary for income” | Stricter test | Removed |
Super-deduction limitation for R&D + IP | Restricted related parties | Removed |
Shareholding percentage change deemed disposal | Under capital-gains law | Removed |
Suspension of businesses for arrears | Immediate | Now only after 3 written notices |
Additional Adjustments
Area | Adjustment |
Collective investment schemes | 5-year grace period – taxation begins 1 Jan 2031. |
Stock-exchange listings | Deduction up to €300,000 per 3-year period for first-time listings. |
Entertainment expenses | Deductible limit raised from €17,086 → €30,000. |
Ex-gratia payments | Tax-free limit increased €20,000 → €200,000. |
Interest income exemptions | Income of provident funds, state & local authorities exempt from income tax (only SDC). |
Expert Commentary: Insights from Economist Tasos Iasemis
Economist Tasos Iasemis, speaking on Sigma TV’s “Mesimeri kai Kati”, provided further interpretation of how the reform will affect different taxpayer groups and confirmed that the bills are now before Parliament awaiting debate.
Impact on Individuals
Group / Category | Effect |
Income ≤ €20,500 | No material change (already exempt). |
Income €25,000–€30,000 | Noticeable but modest tax relief. |
Income > €80,000 | Larger benefit due to delayed entry into 35% band. |
Families ≤ €80,000 (≤ €100,000 large families) | Eligible for new deductions (children, students, rent, loans). |
Green investments | €1,000 deduction for electric vehicles or energy-efficient upgrades. |
He highlighted that middle- and upper-income earners will see the clearest benefit due to the widened brackets, while low-income individuals will experience minimal change.
Impact on Businesses
Aspect | Expert Analysis |
Corporate rate ↑ to 15% | Offset by dividend-related relief; overall reduction in effective taxation for Cypriot shareholders. |
Abolition of deemed dividend distribution | Reduces distortion between Cypriot and foreign shareholders. |
Dividend tax ↓ to 5% | Encourages reinvestment and transparency in profit distribution. |
Crypto & stock-option rules | Introduces long-needed clarity for the fintech and digital-asset sectors. |
Stamp duty / rental SDC abolition | Simplifies compliance; may shift rental cost dynamics between landlords and tenants. |
Tax-Evasion Enforcement
Measure | New Procedure |
Tax arrears & non-compliance | The Tax Commissioner may apply to the District Court to suspend a business’s operations after three written warnings, strengthening enforcement while preserving procedural fairness. |
Distributional Overview
Income Band (€) | Likely Outcome |
< 20,500 | Neutral |
25,000 – 30,000 | Slight relief |
40,000 – 80,000 | Moderate savings |
> 80,000 | Significant benefit |
Families ≤ 80,000 / 100,000 | Qualify for enhanced deductions |
Legislative Timeline
Stage | Expected Timing |
Submission to Parliament | End October 2025 |
Finance Committee review | November 2025 |
Final Vote (Plenary) | December 2025 – Target |
Effective Date | 1 January 2026 |
Transitional Grace Periods | Deemed dividend phase-out + collective investment scheme exemption to 2031 |
Connor Legal Commentary
In our view, the inclusion of these latest clarifications underscores several strategic takeaways:
- Cypriot-owned companies will see a net tax benefit despite the higher corporate rate, due to dividend relief and removal of deemed distributions.
- Professionals and high-income households can achieve efficient tax optimisation through expanded deductions and planning.
- Crypto and technology companies gain long-awaited legal certainty, confirming Cyprus’s positioning as a competitive EU hub for digital finance.
- Tax enforcement powers will become stricter, requiring businesses to maintain full compliance and documentation readiness.
Connor Legal continues to monitor the parliamentary process closely and will issue a further briefing once the final legislative text is enacted.
How Connor Legal Can Assist
Our firm advises on corporate restructuring, dividend policy planning, non-dom optimisation, and tax-efficient investment vehicles in Cyprus.
We also provide comprehensive guidance for individuals, families, and expatriates on residency, wealth structuring, and cross-border taxation.
Clients are encouraged to review their current structures before 1 January 2026 to secure optimal positioning under the new regime.
Conclusion
The Cyprus Tax Reform 2025 is a defining step toward a modern, balanced, and internationally aligned tax framework.
While the reform maintains fiscal neutrality, it reshapes personal and corporate tax planning across the island.
Early analysis and adjustment are essential to maximise opportunities and mitigate risks.
For personalised legal and tax advice, contact Connor Legal for a confidential consultation.
