On February 26, 2025, the Economics Research Centre at the University of Cyprus released a sweeping new tax reform proposal, which the Ministry of Finance is now reviewing. If it clears both the Council of Ministers and the House of Representatives—with public input expected along the way—some changes could take effect as early as the 2025 tax year.

Here’s a breakdown of the major proposed updates and their potential impact.

Corporate Tax Developments

A key headline is the proposed increase in the corporate tax rate—from its long-standing 12.5% to 15%. This shift is widely seen as aligning Cyprus with global tax standards. New anti-abuse rules are also expected to target companies with few shareholders.

Another major change would extend the carryforward period for tax losses from 5 to 10 years, though limitations may apply beyond year five. The 1.5% insurance premium tax would be abolished, and depreciation on used properties would be based on the actual purchase price—plus added incentives for buildings upgraded to energy-efficient standards.

Profits from crypto trading will also come under the tax net, but only if revenue-generating in nature is considered.

Importantly, several popular incentives remain untouched:

• IP Box regime
• Notional interest deduction
• Group relief rules
• Tonnage tax for shipping
• Dividend exemptions
• Gains on the sale of shares
• SDC on most investment income

Special Defence Contribution (SDC) Reforms

Some of the biggest changes affect the SDC:

• Rental income: No longer subject to SDC.
• Dividends: For Cyprus-domiciled residents, the SDC drops from 17% to just 5%.
• Non-domicile status: The 17-year rule stays, with an option to extend it for a fee.
• Deemed dividend distribution: Set for full repeal—great news for holding structures.

Stamp Duty Adjustments

Stamp duty would now only apply to:

• Real estate-related documents
• Banking and insurance agreements

For most other contracts, this means fewer fees and less red tape.

Personal Income Tax Overhaul

Several personal tax changes stand out:

• Tax-free threshold: Raised from €19,500 to €20,500
• New brackets:
  • Up to €20,500: 0%
  • €20,501 – €30,000: 20%
  • €30,001 – €40,000: 25%
  • €40,001 – €80,000: 30%
  • Over €80,000: 35%

Expanded deductions are planned for:

• Families with children or students
• Households paying rent or mortgages
• Green home upgrades

Residency rules are also being refreshed:

• The 183-day rule stays
• The 60-day rule will be reinforced
• A new test based on the “centre of business interests” (without physical presence) is proposed

Employment & Stock Option Rules

The popular 50% income tax exemption for first-time employment in Cyprus will remain.

However:

• Lump-sum employer payments (e.g., ex gratia) will be taxed above a certain amount
• Businesses can still fully deduct those payments
• Stock option taxation is under review, with potential reforms on the horizon

Push for Green and Digital Investment

To drive sustainability and innovation, the reform introduces:

• Super deductions and accelerated depreciation for qualifying green/digital projects
• Full deductibility for employee retraining and upskilling expenses

These moves aim to help businesses stay competitive in a fast-changing economy.

Looking Ahead

This Cyprus Tax Reform Proposal reflects input from policy experts, academics, and business leaders. The timeline targets full implementation by 2026, though some parts may kick in during the 2025 tax year.

What’s the Bottom Line?

• Businesses should revisit their tax planning—especially in light of the new corporate rate and green incentives.
• Individuals could benefit from lower dividend and rental taxes but should track new residency requirements closely.

Ultimately, the goal is clear: modernize the system, stay globally competitive, and support economic growth and sustainability in Cyprus.