**Nicosia, Cyprus – December 23, 2025** – In a significant legislative manoeuvre, the Cypriot House of Representatives has overwhelmingly endorsed a sweeping tax reform package, poised to reshape the nation's fiscal landscape from January 1, 2026. The comprehensive overhaul, championed by President Nikos Christodoulides' administration, aims to alleviate financial pressures on households, bolster family support systems, and significantly enhance the island's economic competitiveness on the global stage. The reforms, which passed with broad parliamentary support from parties including DISY, DIKO, DIPA, and EDEK, represent a concerted effort to modernise the economy and foster a more equitable distribution of the tax burden.
The cornerstone of this fiscal recalibration lies in the substantial revision of income tax brackets and the introduction of enhanced deductions specifically designed to benefit families. A key amendment sees the tax-free income threshold elevated from €19,500 to €22,000 annually, immediately offering respite to a considerable segment of the middle class. Further adjustments will see income between €22,001 and €32,000 taxed at 20%, with subsequent brackets reaching 25%, 30%, and a top rate of 35% for incomes exceeding €72,001. This tiered approach is intended to ensure that those with higher earnings contribute proportionally more, thereby redistributing the fiscal load.
A particularly impactful provision is the introduction of new deductions for families, tailored to the number of dependent children or students up to the age of 24. Under the new system, the first child or student will qualify for a €1,000 deduction, the second for €1,250, and each subsequent child or student thereafter will garner a €1,500 deduction. These deductions are tiered according to family income, with thresholds set at €100,000 for families with one to two children, €150,000 for those with three to four, and €200,000 for families with five or more children. Special provisions have also been made for single-parent households, potentially doubling these deductions if both parents share full custody. Beyond child-related benefits, the reforms incorporate additional deductions of €2,000 per spouse or partner for loan interest or rent payments, and a €1,000 allowance per spouse or partner for investments in green home initiatives or the purchase of electric vehicles, underscoring a commitment to both social welfare and environmental sustainability.
Finance Minister Makis Keravnos hailed the legislative achievement as "the culmination of a great and demanding effort," emphasising its potential to "reduce strain on family finances, [and] provide more breathing room for everyday life." Projections indicate that over 160,000 middle-class taxpayers stand to benefit, with estimated annual savings ranging from €500 to €2,000 depending on individual circumstances. For instance, taxpayers earning €40,000 are anticipated to save approximately €885 annually, while those earning €70,000 could see their savings reach around €1,485.
The reform package also extends its reach to the corporate sector, introducing adjustments designed to invigorate the "real economy" and attract "productive and quality" foreign investment. While the corporate tax rate will see a modest increase to 15%, this is counterbalanced by a significant reduction in the defence contribution on dividends, falling from 17% to 5%. Furthermore, the defence contribution on rental income has been abolished, as have stamp duties entirely, and the concept of deemed dividend distribution has been eliminated. These measures are expected to enhance Cyprus's attractiveness as a business hub and improve its international economic standing.
Despite widespread support, the opposition party AKEL has raised concerns regarding certain aspects of the reform, indicating that nuanced debates may continue. However, the overwhelming parliamentary consensus suggests a strong national will to modernise the tax system, foster economic growth, and improve the quality of life for Cypriot citizens and families. The successful passage of these five key bills marks a pivotal moment, signalling a new era of fiscal policy in Cyprus.