Cyprus is popular due to its reputation as a tax haven. Many taxes have been completely abolished in this jurisdiction, and some are set at relatively low rates compared to other European countries. This attracts thousands of new residents to the island every year. Cyprus is popular both as a jurisdiction for company registration and as a place for individuals who want to optimize their personal tax obligations. The jurisdiction has been under criticism and pressure from EU bodies for quite some time, and the government has been forced to announce that a tax reform in Cyprus will be launched in 2025.
On February 26, 2025, the Economic Research Center of the University of Cyprus presented its tax reform plan. The plan will undergo a discussion process, after which the Ministry of Finance of Cyprus will prepare draft bills to be submitted for voting. It is expected that some tax changes will come into effect in 2025, while others will take effect in 2026.
Which Taxes Will Be Affected by the Reform
The tax reform in Cyprus will be large-scale, affecting taxation on both corporate and personal levels. The main change is the increase of the corporate tax rate from 12.5% to 15% for companies registered in Cyprus, which will now align with OECD requirements under the BEPS plan and Pillar 2. Additionally, the income thresholds for individuals will be raised, while previous tax rates will remain unchanged. Most of the benefits will remain unaffected.
Corporate Taxes
The following changes in corporate taxes are expected:
- New corporate tax rate: 15%;
- Introduction of new rules to prevent abuse by companies with closed structures;
- Tax losses can be carried forward for up to 10 years instead of the current five-year period, although the use of losses after five years will be limited to a percentage of the company’s taxable profits for the year;
- A 1.5% tax on insurance premiums will be abolished;
- Tax depreciation on “used” buildings will be determined based on the purchase cost by the new owner. The depreciation period for buildings that have undergone modernization to improve energy efficiency (“green” energy) will be updated;
- Profits from cryptocurrency trading will be taxed if considered income;
- Provisions for corporate reorganization will be improved;
- The Special Defense Contribution (SDC) will be changed. For Cyprus residents not under the non-domicile status, the rate will be reduced from 17% to 5%. The existing SDC on rental income will also be abolished;
- Capital gains tax will be modernized;
- Restrictions on stamp duty will be introduced.
At the same time, the following aspects will remain unchanged:
- Tonnage tax regime for the shipping sector;
- Rules for deducting notional interest on corporate capital;
- Rules for exemption from taxation on dividends;
- Exemption from tax on the sale of shares and other securities;
- IP Box regime rules.
Green Transition and Digital Transformation
The plan includes a combination of measures related to expenses for green transition and digital transformation:
- Enhanced deductions for expenses/capital expenditures;
- Accelerated depreciation;
- Deductions for employee qualification improvement and retraining;
- Losses arising from the above measures can be carried forward without restrictions.
Personal Income Tax
It is proposed to increase the tax-free income threshold for individuals, which currently stands at €19,500. In addition, income ranges for the application of progressive tax rates will be expanded. The tax rates themselves will remain unchanged.
| 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% |
Tax benefits for individuals in Cyprus will be provided:
- To parents with children/students based on income criteria;
- To individuals regarding housing loans for their primary residence or rental payments;
- To families making environmental improvements in their households.
It is proposed to amend the 60-day rule for determining tax residency. The center of business interests in Cyprus will now be considered, regardless of physical presence on the island.
If the conditions and anti-abuse rules are met, income from stock options will be taxed at a reduced rate.
Also, several improvements will be made for individuals employed in Cyprus. Voluntary payments from an employer to an employee can be deducted from the taxable base. The same will apply to “golden handshakes” and “severance payments.” Donations to culture will be deductible.
There will be no changes to the 50% exemption from income tax on the first employment in Cyprus.
Conclusion
Currently, all proposed changes remain at the initiative stage. The proposals must go through a long process of discussions, drafting of bills, voting, and final adoption. Therefore, many of the proposed changes may not come to fruition or may be implemented in a different form. It is expected that some changes will take effect by the end of 2025 and will have retroactive effect. The majority of the reforms will take effect from the new 2026 tax year.
If you are interested in business registration in Cyprus, using the special IP box tax regime, or other services in this jurisdiction, feel free to contact us. We are always happy to help!
