Tax reform in Cyprus from 2026 – new rates, family deductions and changes for business

The Cyprus Parliament has approved a new tax reform and, to be honest, this is one of those rare cases where the phrase “major changes” does not sound like an exaggeration. We are talking about the most serious overhaul of the country’s tax system since the early 2000s. The new rules will be introduced gradually from 2026 and will affect almost everyone – private individuals and families, as well as businesses, investors and international companies operating in Cyprus.

The reform tackles several objectives at once. On the one hand, the authorities are emphasizing social support. On the other, they are strengthening tax control, expanding the tax base and aligning the system with pan-European standards of tax transparency. The balance, frankly speaking, is not an easy one.

Changes for individuals and families

The main and most discussed change is the increase in the tax-free threshold. From 2026, personal income tax in Cyprus will be calculated using an updated scale:

income up to €22,000 – tax free

€22,001–32,000 – 20%

€32,001–42,000 – 25%

€42,001–72,000 – 30%

over €72,001 – 35%

At the same time, targeted tax deductions are being introduced, primarily aimed at families. These include deductions for children and students in the amount of €1,000–1,500 per person, as well as deductions for rental expenses and mortgage interest – up to €2,000 per year. This looks like a logical step against the backdrop of rising property prices and rents in Cyprus.

A separate block concerns ecology and real estate. Investments in energy efficiency of residential property, the purchase of electric vehicles and other “green” solutions will entitle taxpayers to a deduction of up to €1,000. In addition, insurance of property against natural disasters is being encouraged, with a possible deduction of up to €500. A small detail, perhaps, but in practice such things often influence decisions.

It is important that family benefits are now linked to the total household income. The threshold is set at €100,000 for families with 1–2 children, €150,000 for families with 3–4 children, and up to €200,000 for large families. The approach is more targeted, although, of course, it will not seem ideal to everyone.

New rules for businesses, investors and shareholders

For companies, the Cyprus tax reform looks less straightforward. Corporate income tax is increasing from 12.5% to 15%, bringing Cyprus closer to average European rates. At the same time, the deemed dividend distribution rule is abolished for profits earned after 1 January 2026. For holding structures and international businesses, this is a genuinely significant change.

There are also relief measures. The defence contribution on actually paid dividends is reduced from 17% to 5%, the period for carrying forward tax losses is extended from 5 to 7 years, and the limit on entertainment expenses is increased to €30,000. The defence contribution on rental income is completely abolished, as well as stamp duty, which simplifies transactions and reduces administrative costs.

Special attention should be paid to the new tax on income from crypto assets and share options. For the first time, a fixed rate of 8% is introduced, effectively taking these instruments out of the grey zone and creating clearer rules for investors.

Strengthening tax control and digitalisation

Perhaps the quietest, yet most sensitive part of the reform is the strengthening of tax administration. Expanded digital reporting, closer data exchange with banks and an increase in the number of tax audits are expected. Cyprus is clearly focusing on improving tax collection and reducing the shadow economy, in line with EU requirements and international standards.

Overall, the new tax system in Cyprus looks like an attempt to combine social support, investment attractiveness and strict transparency. For individuals, this means lower taxation on basic income and new deductions. For businesses, it means the need to adapt in advance to stricter rules. In the long term, the authorities expect to strengthen the budget and preserve Cyprus as a competitive jurisdiction for investors and property owners. How this will work in practice should become clear very soon.