In a press conference held at the Presidential Palace on 26 February 2025, the Economics Research Centre of the University of Cyprus (CypERC) presented its proposals on the long-anticipated tax reform.
The proposals will be subject to further discussions and fine-tuning, after which they will need to be approved by the Council of Ministers. Once the relevant law bills are prepared and approved by the House of Representatives, it is expected that they will become fully applicable as from year 2026.
Overall, the proposals seem to be in the right direction and are expected to further strengthen the competitiveness and attractiveness of the Cyprus tax system, while at the same time ensuring fairer distribution of the tax burden and redistribution of wealth.
The main proposals are as follows:
CORPORATE TAX
- Increase of the corporate income tax rate from 12.5% to 15%.
- Retaining of certain beneficial provisions such as Notional Interest Deduction, IP box regime, shipping regime. Also, various tax-exempt incomes remain unchanged.
- Enhancement of corporate tax residency criteria (“management and control”).
SPECIAL DEFENCE CONTRIBUTION (SDC)
- Reduction of the SDC rate on dividends from 17% to 5%. This applies to Cypriot domiciled tax resident individuals.
- Abolition of the Deemed Dividend Distribution provisions.
- Abolition of 3% SDC on rental income for companies and individuals.
PERSONAL INCOME TAX
- Increase of tax-free threshold from €19,500 to €20,500 per year.
- Amendments to intermediary bands, with the top tax band of 35% applying to income exceeding €80,000.
- Additional allowances for households with children, where the combined gross annual income of both spouses does not exceed €80,000.
- Retaining of the non-domiciled tax status, with the option of extending the applicable 17-year period upon payment of an annual fee.
- Definition of “residency” based on the 60-day rule to be expanded, to include individuals whose centre of business interests is in Cyprus, regardless of physical presence.
OTHER
- Stamp duty: abolition of horizontal imposition of stamp duty. Fixed amounts, to be imposed only on agreements relating to immovable property, banking and insurance transactions.
- Tax losses: carry-forward of tax losses to 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: To be tax-exempt up to a certain amount at the level of the employee. The employer will have the right to claim the full amount as tax deductible.
- Insurance companies: abolition of the 1.5% insurance premium tax.
