FAR REACHING AMENDMENTS TO THE CYPRUS TAX SYSTEM
Changes to Personal Income Tax
A key element of the reform is the increase in the tax-free income threshold to €22,000, providing immediate relief to low- and middle-income earners. At the same time, personal income tax brackets are restructured as follows:
20% on income from €22,001 to €32,000
25% on income from €32,001 to €42,000
30% on income from €42,001 to €72,000
35% on income above €72,001
These changes introduce a more progressive structure while maintaining competitiveness for higher earners.
Corporate and Business Taxation Reforms
The reform package introduces several important measures affecting companies and legal entities:
The deemed dividend distribution regime is abolished for profits generated after 1 January 2026, simplifying corporate taxation.
The Special Defence Contribution (SDC) on actually distributed dividends is reduced significantly from 17% to 5%.
The corporate income tax rate increases from 12.5% to 15%, aligning Cyprus with emerging international tax standards.
The loss carry-forward period is extended from five to seven years, offering greater flexibility to businesses.
The maximum amount of tax-deductible entertainment expenses is increased to €30,000.
A new flat tax of 8% is introduced on profits arising from the disposal of crypto-assets, providing clarity in the taxation of digital assets.
The SDC on rental income is fully abolished, benefiting property owners and investors.
Increase in the National Minimum Wage
In addition to tax changes, the government has announced an increase in the National Minimum Wage to €1,088 net per month, effective from 1 January 2026. The new rate will remain in force until 31 December 2027 and aims to support household income amid rising living costs.
Conclusion
Overall, the 2026 reforms represent a strategic shift in Cyprus’s fiscal and labour policy. By easing the tax burden on individuals, modernising corporate taxation, and introducing clearer rules for emerging sectors such as crypto-assets, the measures seek to enhance economic resilience while maintaining Cyprus’s attractiveness as a business and investment destination.