The Economics Research Centre of the University of Cyprus has provided its tax reform proposal that is to go through the Ministry of Finance and the Council of Ministers before it undergoes the vote of the House of Representatives and take effect as of 2026.
The newly proposed tax reform does not amend the present status of Intellectual Property Box regime, Shipping regime, Notional Interest Deduction, Group Loss Relief, or deduction for first employment in Cyprus.
According to the newly proposed tax reform regarding individual taxation, the present tax-free annual threshold of €19,500 is to be increased to €20,500, with intermediary annual thresholds increasing accordingly to € 20,500, € 30,000, € 40,000 and the highest present threshold of 35% applying to income above €80,000, instead of the actual €60,000.
According to the newly proposed tax reform:
- The extension of the non-domiciled status of individuals will require annual fee.
- Corporate tax income is to increase from 12.5% to 15% for all entities. – Deemed distribution under Special Defence Contribution (SDC) is to be abolished.
- SDC on rental income is to be abolished.
- SDC on dividends of individuals tax residents and domiciled in Cyprus is to decrease 17% to 5%.
- Stamp duty is to be restricted to immovable property, banking and insurance transactions.
The upcoming tax reform is amongst other issues proposing the following:
- The 60 Days Tax Residency scheme is to be extended to individuals who can claim Cyprus as their centre of business interests, irrespective of their physical presence.
- The financial bonus reserved for higher executives is to be treated as a tax-deductible expense for the employer and a taxable income of the employee.
- The employee is to be taxed on ex-gratia payments which are to be tax deductible for the employer.
- The period for carried forward of losses is to be extended from 5 to 10 years.
- Deductions are to be granted to individuals for housing loans regarding their primary residence or rent, to families for green household upgrades and parents with children who are students subject to income criteria.
- The lower taxation of stock options during their execution.
- The Deputy Ministry of Culture is to provide recommendations as to the tax deductibility of donations and contributions related to culture.
- Present Insurance Premium Tax provisions are to be abolished.
- Green Transition and Digital Transformation expenses are to be entitled to deduction for expenses claimed and capital allowances, accelerated depreciation, absence of restriction for carried forward losses arising from such expenses and deductions for personnel training.