The proposals for the long-awaited tax reform were presented during a press conference on 26 February 2025.
In summary, the main proposals are as follows:
CORPORATION TAX
- Increase of the tax rate from 12.5% to 15%, also in line with the developments for the Global Minimum Tax as covered here.
- The criteria for establishing and maintaining tax residency in Cyprus, based on the Management and Control concept will be enhanced.
Existing schemes and provisions such as the Notional Interest Deduction (NID) on new equity, the IP Box regime, the special tax system for shipping activities will be maintained. Various tax-exempt types of income as well as tax allowable expenditure will also be retained.
SPECIAL CONTRIBUTION FOR DEFENCE (SCD)
- The SCD on dividend income, for Cyprus resident and domiciled individuals, will be reduced from 17% to 5%.
- The SCD on rental income of 3%, applicable both to corporations and individuals, will be abolished.
- The Deemed Dividend Distribution provisions, applicable to companies with Cyprus resident and domiciled individuals, will be terminated.
The Non-Dom regime will maintained, with the option to extent its validity period from the current term of 17years, upon payment of an annual fee.
PERSONAL INCOME TAX
- The tax-free threshold will be increased from €19,500 to €20,500 per annum.
- Amendments to intermediary income bands, with the top tax band of 35% applying to income exceeding €80,000 instead of the current threshold of €60,000.
- Additional allowances for households with children, where the combined gross annual income of both spouses does not exceed €80,000.
- Allowances for individuals in respect of housing loans for their primary residence or rent payments and for green household upgrades.
The 60-Day Tax Residency scheme will be maintained, with the definition of “residency” expanded, to include individuals whose centre of business interests is in Cyprus, regardless of physical presence.
The 50% Rule for first employment in Cyprus will also be maintained.
OTHER
- Stamp duty: its application will be limited to agreements related to immovable property, as well as banking and insurance transactions.
- Tax losses: carry-forward of tax losses will be extended from 5 to 10 years, subject to conditions.
- Stock options: possibly to be taxed at a lower rate upon exercise (subject to conditions).
- Ex-gratia payments to employees: the employee to be taxed subject to a capped tax-free amount with the employer having the right to claim the whole amount as tax deductible.
- Golden Hellos / Handshakes: the full amount will be treated as taxable for the employee and tax-deductible expense for the employer.
- Culture related donations and contributions: to be treated as tax deductible expense based on recommendations given by the Deputy Ministry of Culture.
- Insurance companies: the 1.5% insurance premium tax will be abolished.
- Expenses for Green Transition and Digital Transformation will be entitled to enhanced benefits, such as extra deduction of expenses, accelerated depreciation, deductions for personnel training, no restriction for carry-forward of losses.
The proposals will be subject to further discussions and consultation, after which they will need to be approved by the Council of Ministers, drafted in the form of law bills, and examined and approved by the Parliament in order to become law. The plan is that they will become fully applicable as from 2026. Further details and developments will be reported as they occur.