Tax Reform in Cyprus 2025: What Does it Mean for You and Your Business?

What is the significance of the new tax reform package in 2025?

In an unexpected move, Cyprus's Cabinet approved its first comprehensive tax reform in 22 years. Labelled as a "flagship project" by Finance Minister Makis Keravnos, the reform aims to distribute the tax burden more evenly across different income groups. Its focus is to support middle and low-income earners alongside small and medium-sized enterprises, which form the backbone of the Cypriot economy.

What tax reliefs are available for families and individuals?

The reform introduces substantial tax incentives for families. The threshold for tax-free income has been raised from €19,500 to €20,500, amongst the highest in the European Union. Families with incomes below €80,000, or €100,000 for larger families, can benefit from:

• A €1,000 tax credit per child.

• €2,000 per child for single-parent families.

• A €1,000 rebate for each student.

• €1,500 for interest on mortgages or rent for a primary residence.

• €1,000 incentives for energy upgrades or electric vehicle purchases.

These measures ensure that 55% of workers will not pay taxes, effectively increasing the tax-free threshold to more than €24,500 in various cases.

How does the reform impact businesses?

For companies, the tax reform presents significant modifications. The phasing out of deemed dividend distribution is set for January 1, 2026. In a positive development, the special defence contribution on dividends will drop to 5%, while the levy on rental income will be eliminated. Yet, the corporate tax rate will rise from 12.5% to 15%, and an 8% rate will be imposed on profits from cryptocurrency. The reform also extends the period for carrying forward losses from five to seven years, providing additional breathing room for businesses.

How does the reform tackle tax evasion?

Tax evasion remains a priority under this reform. New enforcement measures include issuing warnings to errant businesses, which could lead to court appeals and possible temporary closures. These mechanisms are designed to ensure fairness and compliance across all sectors.

What changes were made after the consultation?

Collaborations with societal partners led to adjustments, such as the increase of the tax-free amount for voluntary retirement from €20,000 to €200,000. Plans for property and business levies have been postponed. The fee for Non-Dom companies also drops significantly, from €250,000 to €50,000, over five years, keeping Cyprus attractive for foreign investment.

What are the next steps for this reform?

The finance ministry is pushing for this package to be approved by Parliament by the end of 2025, with an effective date at the start of 2026. The reform package is seen as pivotal for economic growth and aims to ease financial pressures on workers and families.

Staying informed on changes like the tax reform can have significant implications for personal and business finances. Interested in learning how these changes can affect your specific situation? For guidance on how this reform impacts residency, investment opportunities, and the real estate sector in Cyprus, feel free to reach out to us at info@klztlaw.com.

Stay updated and subscribe to our newsletter for the latest insights on Cyprus's legal and economic landscapes.