On Wednesday, 26 February 2025, the Cyprus Tax Reform Team—spearheaded by the University of Cyprus’ Center of Economic Research—unveiled a series of suggested changes to the country’s tax framework at the Presidential Palace. These proposals will soon enter a phase of public consultation before heading to the Council of Ministers. Once approved, they will require parliamentary endorsement to take effect.

Below is an overview of the principal recommendations:

Key Proposed Amendments

1. Corporate Income Tax (CIT) Rate

  • Raise the CIT rate for all companies from 12.5% to 15%.

2. Special Defence Contribution (SDC)

  • Decrease the SDC rate on dividends received by Cyprus tax-resident and domiciled individuals from 17% to 5%.
  • Eliminate existing deemed distribution provisions.
  • Remove SDC on rental income.

3. Green Transition and Digital Transformation Incentives

  • Introduce various incentives, such as:
    • Enhanced (super) deductions for relevant expenses/capital allowances
    • Accelerated depreciation
    • Deductions for personnel training
    • Unlimited carry-forward of related losses

4. Personal Income Tax

  • Update the income bands and corresponding tax rates:
Taxable Income (€) Tax Rate
Up to 20,500 0%
20,501 – 30,000 20%
30,001 – 40,000 25%
40,001 – 80,000 30%
Over 80,000 35%
  • Offer personal tax deductions for:
    • Parents/guardians with dependent children or students (subject to income criteria)
    • Primary residence expenses, such as mortgage interest or rent
    • Environmentally friendly home improvements

5. Stock Options

  • Tax the stock option benefit once it becomes exercisable, but at a rate below standard personal income tax rates (conditions to be determined).

6. Ex-Gratia Payments

  • Subject the employee to tax on the benefit, with a specified tax-free threshold, while allowing the employer a corresponding deduction.

7. Golden Hellos/Handshakes

  • Tax the employee on the benefit, and permit the employer to claim a deduction.

8. Personal Tax Residency (60-Days Rule)

  • Broaden eligibility to include individuals whose “center of business interests” is in Cyprus, regardless of the number of days spent in the country.

9. Loss Carry-Forward

  • Extend the timeframe for carrying forward losses from 5 to 10 years (with certain restrictions).

10. Insurance Companies

  • Abolish the insurance premium tax.

11. Stamp Duty

  • Restrict stamp duty to agreements associated with immovable property, banking transactions, and insurance.

No Expected Amendments

The Tax Reform Team has indicated it does not intend to modify several favorable elements of Cyprus tax legislation, including:

  • The Notional Interest Deduction
  • The Intellectual Property (IP) Box Regime
  • The Tonnage Tax Regime
  • The 50% personal income tax exemption for first-time employment in Cyprus
  • The exemption from SDC for Cyprus tax-resident individuals who are non-domiciled

Next Steps

If approved, these measures could significantly impact both individuals and businesses in Cyprus. For guidance on how these proposals may affect your specific circumstances, we stand ready to discuss potential strategies and actions in anticipation of the changes.