Introduction: The Government of Cyprus has recently proposed a series of tax amendments aimed at reducing the tax burden on households and businesses, modernizing the tax system, and enhancing economic resilience. These proposals were presented at a special event at the Presidential Palace on 26 February 2025, attended by President Nikos Christodoulides and other key officials.

Key Proposed Amendments:

1. Increase in Tax-Free Income Threshold:

• The tax-free income threshold for individuals is proposed to increase from €19,500 to €20,500
• This change aims to provide significant tax relief to middle-class households

2. Changes in Tax Brackets:

• The highest tax rate of 35% will now apply to taxable income above €80,000
• Lower tax rates will be applied to incomes across all levels, reducing the overall tax burden.

3. Corporate Tax Adjustments:

• The corporate tax rate is proposed to increase from 12.5% to 15%
• Companies distributing dividends from their profits will be taxed at 5%, down from the current 17%
• Companies retaining profits for reinvestment will not be taxed

4. Tax Deductions for Households:

• Proposed deductions include €1,000 per spouse and additional amounts for children and students, based on family composition and income criteria
• These deductions aim to support families and reduce their tax liabilities.

5. Abolition of Defense Contribution on Rents:

• The defense contribution on rents will be abolished, and rents will be taxed with income tax instead

6. Taxation of Cryptocurrencies:

• Cryptocurrencies will be taxed unless they are of a capital nature

Fiscal Impact: The proposed tax changes are expected to have a fiscal cost of €150,000,000 – €170,000,000 from individuals and €230,000,000 – €300,000,000 from a reduction in the defense contribution.

The impact on state revenue is estimated at €220,000,000 – €270,000,000 from the increase in      corporate tax and other potential taxes

Conclusion: These proposed amendments represent a significant step towards modernizing Cyprus’s tax system, providing relief to households, and supporting businesses. The government aims to implement these changes methodically and consistently to enhance the economic resilience of Cyprus.