Cyprus Tax Reform: Key Proposals Unveiled

Key Proposals at a Glance
Corporate Tax
Increase in Corporate Tax Rate: The corporate income tax rate will rise from 12.5% to 15%, aligning Cyprus with global tax standards while maintaining its competitive edge.

Retention of Key Incentives: Beneficial provisions such as the Notional Interest Deduction (NID), the IP box regime, and the shipping regime will remain intact. Tax-exempt incomes will also remain unchanged.

Enhanced Residency Criteria: The criteria for corporate tax residency will be strengthened, focusing on the “management and control” of companies to ensure substance and compliance.

Special Defence Contribution (SDC)

Reduced SDC on Dividends: The SDC rate on dividends for Cypriot tax-resident individuals will be reduced from 17% to 5%, encouraging investment and economic growth.

Abolition of Deemed Dividend Distribution: The controversial Deemed Dividend Distribution provisions will be abolished, simplifying the tax framework.

Elimination of SDC on Rental Income: The 3% SDC on rental income for both companies and individuals will be removed, providing relief to property owners.

Personal Income Tax

Increased Tax-Free Threshold: The tax-free threshold will rise from €19,500 to €20,500 annually, reducing the tax burden on low- and middle-income earners.

Revised Tax Bands: The intermediary tax bands will be adjusted, with the top tax rate of 35% applying to incomes exceeding €80,000.

Family-Friendly Allowances: Additional tax allowances will be introduced for households with children, provided the combined gross annual income of both spouses does not exceed €80,000.

Non-Domiciled Tax Status: The non-domiciled tax status will be retained, with an option to extend the 17-year exemption period upon payment of an annual fee.

Expanded Residency Definition: The 60-day residency rule will be broadened to include individuals whose “centre of business interests” is in Cyprus, regardless of physical presence.

Other Notable Changes

Stamp Duty Reforms: Horizontal imposition of stamp duty will be abolished. Fixed amounts will apply only to agreements related to immovable property, banking, and insurance transactions.

Extended Tax Loss Carry-Forward: The carry-forward period for tax losses will be extended from 5 to 10 years, subject to specific conditions.

Stock Options Taxation: Stock options may be taxed at a lower rate upon exercise, subject to certain conditions.

Ex-Gratia Payments: Ex-gratia payments to employees will be tax-exempt up to a specified amount for the employee, while employers can claim the full amount as a tax-deductible expense.

Insurance Premium Tax: The 1.5% insurance premium tax will be abolished, reducing costs for insurance companies and policyholders.

Next Steps

The proposed reforms mark a significant step toward modernizing Cyprus’s tax system, balancing competitiveness with international compliance. While the changes are still subject to further refinement and legislative approval, they reflect Cyprus’s commitment to fostering a fair, transparent, and business-friendly tax environment. Stakeholders are encouraged to stay informed as the reforms progress and to seek professional advice to understand their implications fully.

For further information or assistance regarding these proposals, please feel free to contact us. We remain at your disposal for any inquiries or support you may need.

Contact Person: Christos Klokkaris FCCA

This article provides a summary of the proposed tax reforms and is intended for informational purposes only. For specific advice, consult a qualified tax professional.