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Cyprus Enters a New Tax Era
Cyprus has taken a significant step towards reshaping its tax landscape. During a key event at the Presidential Palace, the President of Cyprus introduced a series of proposed reforms aimed at creating a fairer tax system. The reforms, which will affect both corporate entities and individuals, were presented by a team of tax experts and are expected to be implemented in 2025, subject to parliamentary approval.
Corporate Tax Proposals: Higher Rates and Anti-Abuse Rules
Corporate Tax Increase:
A key proposal is to raise the corporate tax rate from
12.5% to 15%, aligning Cyprus with the OECD's
global minimum tax framework (Pillar 2). Despite the increase,
Cyprus will retain one of the most competitive corporate tax rates
in the region.
Anti-Abuse Measures:
A new anti-abuse clause is suggested for closely held companies,
introducing the possibility to "lift the corporate veil"
to tax shareholders under self-employment rules or adjust salaries
to market levels.
Dividend Taxation: Simplification and New Rates
The proposal includes abolishing the deemed dividend distribution rule and replacing it with a fixed 5% tax on actual dividend distributions for Cyprus tax residents and domiciled individuals. Non-domiciled individuals will continue to enjoy a 0% tax rate on dividend income.
A "hidden profit distribution" clause is also proposed, targeting companies that avoid dividend payouts but cover personal expenses or acquire non-essential assets, subjecting these to higher taxation.
Green & Digital Incentives: Driving Sustainability and Innovation
To encourage eco-friendly and digital investments, companies may choose from:
- Over-deductions for eligible expenses,
- Accelerated depreciation,
- Reskilling discounts for staff.
Losses from these activities will be allowed to carry forward beyond the current five-year limit.
Personal Income Tax & Household Benefits
New Income Tax Bands:
The personal tax-free threshold will rise by €1,000. The
35% tax band will now apply from €80,001
upwards, reflecting an overall shift towards a more
progressive tax structure.
Family & Green Incentives:
- €1,000 per spouse per child (under 19/21 years old).
- Up to €1,500 in allowances for first residence loans or rent.
- Deductions for green household improvements (e.g., electric vehicles, solar installations).
Single parents will benefit from enhanced deductions.
What Remains Unchanged
Key incentives such as the Notional Interest Deduction, IP Box Regime, and 50% First Employment Rule will remain intact, preserving Cyprus' appeal to businesses and investors.
Eurofast's Take – Supporting Clients Through the Reform
At Eurofast, we are committed to helping businesses and individuals navigate the upcoming Cyprus tax reform. Our team can assist you in understanding how these proposals may impact your corporate structures or personal tax liabilities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
