Cyprus Tax Reform to Take Effect on January 1, 2026

On 22 December 2025, the Parliament of Cyprus approved a large-scale tax reform affecting the taxation system for individuals and businesses. The new rules will be implemented gradually starting from 1 January 2026 and will affect almost all taxpayers in the country.

The Government of Cyprus describes the reform as socially oriented and emphasizes that it fully complies with European Union standards as well as the country’s international tax obligations.

Key Changes of the Cyprus Tax Reform 2026

The updated tax system of Cyprus introduces a number of significant changes aimed at increasing transparency and expanding the tax base.

The new Cyprus tax system includes:

• an increase of the tax-free allowance for individuals;
• the introduction of a new progressive personal income tax scale;
• an increase in the corporate income tax rate;
• a reduction of the defence contribution on dividends;
• the introduction of a tax on cryptocurrency and options;
• mandatory filing of tax returns for all tax residents.

Changes for Individuals

1. Increase of the tax-free allowance:

From 2026, the tax-free annual income increases to EUR 22,000. This change is aimed at reducing the tax burden for the majority of employees, professionals, freelancers, and self-employed individuals living and working in Cyprus.

2. New progressive personal income tax scale

The personal income tax rates will be as follows:

• up to EUR 22,000 — 0%
• EUR 22,001 – 32,000 — 20%
• EUR 32,001 – 42,000 — 25%
• EUR 42,001 – 72,000 — 30%
• over EUR 72,001 — 35%

3. Family tax allowances:

Eligibility for family tax allowances will depend on the total household income rather than the income of a single family member. This change aims to ensure a fairer distribution of tax benefits and to take into account the actual financial situation of households.

Changes for Businesses and Companies in Cyprus

1. Corporate income tax in Cyprus: the corporate income tax rate increases from 12.5% to 15%.
2. Defence contribution on dividends: for individuals with domiciled status (primarily Cypriot citizens), the defence contribution rate is reduced from 17% to 5%. For individuals with non-domiciled status, the existing exemption regime remains unchanged.
3. Tax on cryptocurrency and options: from 2026, an 8% tax is introduced on income derived from crypto-assets and options. This represents the first systematic taxation of crypto-assets in Cyprus.

Mandatory Tax Return Filing in Cyprus from 2026

According to the new tax reform, all tax residents of Cyprus aged between 25 and 71 are required to file a tax return regardless of the level of income.

A tax return is mandatory even if:

• there is no income;
• income is below the tax-free threshold;
• the tax payable equals zero.

This requirement will apply for the first time to tax returns for the 2026 tax year, which are filed in 2027.

The Cyprus tax reform of 2026 strengthens control over tax reporting, expands the tax base, and requires a more careful approach to tax planning.

For individuals and businesses, it becomes especially important to:

• correctly determine tax residency;
• take into account the new tax rates and obligations;
• file tax returns in a timely manner.

If you require consultation on taxation in Cyprus or professional support in a specific situation, please contact us!

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