On February 26, 2025, the Economics Research Centre at the University of Cyprus released a sweeping new tax reform proposal ( CYPRUS TAX REFORM - Economics Research Centre (CypERC) ), which the Ministry of Finance is currently reviewing. If it clears both the Council of Ministers and the House of Representatives, some changes could take effect in the tax year 2025.
Here’s a breakdown of the major proposed updates and their potential impact.
Corporate Tax Developments
A key headline is the proposed increase in the corporate tax rate from 12.5% to 15%. This shift is widely seen as aligning Cyprus with global tax standards and Pillar II requirements.
Tax losses could be carried forward up to 10 years, rather than the current five-year period, although loss utilization after five years would be limited to a percentage of the company's taxable profit for the year. The current group loss-relief rules would remain unchanged (i.e., no fiscal unity).
The 1.5% insurance premium tax would be abolished.
Profits from trading in cryptocurrencies will also come under the tax net, but only if revenue-generating in nature is considered.
Importantly, several popular incentives remain untouched:
- IP Box regime
- Notional interest deduction
- Group relief rules
- Tonnage tax for shipping
- Dividend exemptions
- Gains on the sale of shares
- SDC on most investment income
Special Defence Contribution (SDC) Reforms
Some of the huge changes are:
- Rental income: No longer subject to SDC.
- Dividends: For Cyprus-domiciled residents, the SDC drops from 17% to just 5%. This is a very important tax measure for this group of individuals.
- Non-domicile status: The 17-year rule stays, with an option to extend it for a fee.
- Deemed dividend distribution: Set for full repeal—great news for holding structures.
Stamp Duty Adjustments
Stamp duty would now only apply to real estate documents & Banking and insurance agreements. For most other contracts, this means fewer fees and less red tape.
Personal Income Tax
1. Changes for Individuals:
- Increase in the tax-free income threshold by €1.000, raising it to €20.500, adjustment of tax brackets, and shifting the highest tax rate of 35% to taxable income exceeding €80.000. The new tax brackets are:
- Up to €20,500: 0%
- €20,501 – €30,000: 20%
- €30,001 – €40,000: 25%
- €40,001 – €80,000: 30%
- Over €80,000: 35%
- Tax deductions applied based on household income criteria, for households with two working partners/spouses with a total gross income of up to €80.000:
1. €1.000 for each spouse/partner per child (under 19 (F)/21 (M) years old).
2. €1,.000 for each spouse/partner per student (up to 23 (F)/25 (M) years old).
3. Up to €1.500 per spouse/partner for mortgage loan installments or rent for the primary residence.
4. Up to €1.000 per spouse/partner for green household upgrades in the year the upgrade is made, e.g. up to 5 years (e.g. energy upgrades of homes, installation of photovoltaic systems, heat pumps, electric cars, etc.).
5. Single-parent families will be classified under the most favorable scenario (as families with two working parents).
2. Retention of Benefits for Cyprus Tax Residents:
- Taxation of worldwide income with exceptions/deductions.
- Deduction of expenses for generating taxable income.
- Notional Interest Deduction (NID).
- Shipping regime and a 50% tax exemption for first-time employment in the Republic.
- Tax Exemption on the profit from the sale of securities
Residency rules are also being refreshed:
- The 183-day rule stays
- The 60-day rule will be reinforced
- A new test based on the “centre of business interests” (without physical presence) is proposed
Employment & Stock Option Rules
The popular 50% income tax exemption for first-time employment in Cyprus will remain.
However:
- Lump-sum employer payments (e.g., ex gratia) will be taxed above a certain amount
- Businesses can still fully deduct those payments
- Stock option taxation is under review, with potential reforms on the horizon
Push for Green and Digital Investment
To drive sustainability and innovation, the reform introduces:
- Super deductions and accelerated depreciation for qualifying green/digital projects
- Full deductibility for employee retraining and upskilling expenses
These moves aim to help businesses stay competitive in a fast-changing economy.
Steps moving forward
It is important to note that the changes highlighted above merely reflect the intentions of the government based on the research and studies conducted by the University of Cyprus, Ministry of Finance and tax experts. For any of the above changes to take effect, the House of Representatives will have to approve the bills with a majority vote. Accordingly, it is important to note that some of the topics described above may not actually be included in the final tax reform measures or may undergo revision before being enacted into law. Stakeholders have acknowledged that there is more work to be done on the project before it is finalized.
The expected timeline to finalize the project is late 2025. As noted above, some tax measures may have retroactive effect and apply as of tax year 2025, but the expectation is that most of the measures will enter into effect as from tax year 2026.
Taxpayers should closely monitor the tax reform process as it is certain that the outcome of the process will have an impact on their business operations and activities.
Cyprus Tax Reform Proposal: 2025 Updates