The Cypriot House of Representatives has overwhelmingly approved significant tax reforms that will take effect from January 1, 2026. These extensive changes, strongly supported by President Nikos Christodoulides’ administration, are designed to ease financial burdens on households and substantially improve the island's global economic competitiveness. The reforms, which garnered widespread parliamentary backing, represent a strategic move towards modernising the economy and achieving a fairer distribution of taxes.
A central element of this fiscal restructuring involves revised income tax brackets and new deductions specifically benefiting families. The tax-free income threshold has been raised from €19,500 to €22,000 annually, providing immediate relief to many middle-income earners. Further adjustments will see income between €22,001 and €32,000 taxed at 20%, with subsequent rates escalating to 25%, 30%, and a top rate of 35% for incomes exceeding €72,001. This progressive system aims to ensure higher earners contribute a larger proportion of their income.
A particularly significant measure introduces new deductions for families based on the number of dependent children or students under 24. The first child will qualify for a €1,000 deduction, the second for €1,250, and each subsequent child for €1,500. These deductions are income-tiered, with thresholds set at €100,000 for families with one to two children, rising for larger families. Additional deductions of €2,000 per spouse for loan interest or rent, and a €1,000 allowance per spouse for green investments, underscore a commitment to social welfare and environmental sustainability.
Finance Minister Makis Keravnos described the legislation as a "culmination of a great and demanding effort," anticipating it will "reduce strain on family finances." Over 160,000 middle-class taxpayers are expected to benefit, with potential annual savings ranging from €500 to €2,000 depending on their financial situation. Taxpayers earning €40,000, for example, are projected to save around €885 annually.
The reforms also address the corporate sector by introducing measures to stimulate the "real economy" and attract quality foreign investment. While the corporate tax rate will slightly increase to 15%, this is offset by a substantial reduction in the defence contribution on dividends, falling from 17% to 5%. The defence contribution on rental income has been abolished, as have stamp duties, signalling a more business-friendly environment. These changes are expected to enhance Cyprus's appeal as a business hub.