Breaking news

Cyprus Tax Overhaul: Corporate Tax Increase And Sweeping Reforms Stir Industry Debate

by THEFUTURE.TEAM

November 26, 2025

Government Action Sparks Industry Alarm

While Parliament has not yet approved the hike in corporate tax from 12.5% to 15%, the decision by the government has become a red line for key professional bodies such as the Cyprus Association of Chartered Accountants (SÉLK) and the Pan-Cyprian Bar Association. These groups link the move to the abolition of the so-called dividend distribution mechanism, as well as a reduction in the emergency defense levy on dividends from 17% to 5% for earnings generated after January 1, 2026.

Revisiting Dividend And Defense Levy Adjustments

The proposed legislation, which will be thoroughly examined by the Parliamentary Committee on Financial Affairs in the coming week, has already triggered robust objections during yesterday’s debate on the emergency defense levy. Both accountants and legal professionals were clear in expressing their disagreements with the changes. The SÉLK contends that an increase in the corporate tax rate would impair Cyprus’s competitive edge and urges the government to clarify the rationale behind the proposed adjustment. The legal community, represented in part by prominent attorneys, insists that the new measures be removed from the bill, warning of significant consequences for businesses and questioning revenue projections which estimate a €240 million gain from the changes.

Follow THE FUTURE on LinkedIn, Facebook, Instagram, X and Telegram

Complexities Of The Emergency Defense Levy Bill

The emergency defense levy bill envisages reducing the levy on income from dividends to 5%, while dividends issued until December 31, 2031, derived from earnings up to 2025, remain subject to a 17% levy. This proposal is intended to correlate past earnings—taxed at 12.5%—with current distributions. Furthermore, a diminishing rate of tax withholding for dividends issued to companies resident in low-tax jurisdictions has been announced, further complicating the policy landscape. Tax Commissioner Sotiros Markidis emphasized the necessity for anti-abuse provisions in light of the abolition of dividend taxation on certain payments.

Stamp Duty Reforms And The Call For Simplification

In parallel to the corporate and dividend tax issues, the Democratic Rally (DISY) is advocating for the abolition of the stamp duty. The proposed reform would eliminate the requirement to use stamped documents, with the exceptions of contracts related to financial services, insurance, real estate transfers, and high-value leases. Having generated €38 million in 2024, the stamp duty is anticipated to yield a revenue loss of between €8 to €10 million under the new legislation. DISY’s MP Haris Georgiadis has argued against the bureaucratic cost of maintaining outdated tax laws merely to extract marginal revenues, while Tax Commissioner Markidis noted the challenges in accurately projecting revenue from stamp duty collections in a modernized, electronic system.

Pension Fund Reforms: A Growing Concern

Significant apprehension is also being expressed by representatives of pension funds. Currently exempt from income tax to safeguard their income capacities, these funds would face a shift in tax treatment starting January 1, 2026, for revenues derived from commercial activities or property exploitation. From 2031 onwards, gains from the sale of pension fund assets such as shares or participation certificates would also be taxed. Stakeholders, including representatives from the Social Insurance Fund and various industry federations, warn that such changes could erode both net fund revenues and the resultant benefits for members, urging a withdrawal of this provision to protect long-term pension values.

Political And Economic Implications Moving Forward

Accelerated parliamentary debate on these six bills suggests a strategic effort to finalize discussions within set deadlines. The upcoming emergency session on Thursday aims to conclude debates on the remaining measures, with a further session on Monday intended to address the broader income tax reform. Finance Minister Makis Keravnos is expected to participate in the final session of the Financial Committee to provide clarity on the central issues raised across party lines.

Following the session, DISY’s MP Onoufrios Koullas remarked on the pressing need to end tax uncertainty. He stressed that the government’s broader agenda should support low-to-middle incomes, families with children and students, and small businesses, ultimately advocating for a streamlined, predictable tax system. Similarly, AKEL’s Christos Christofidis criticized the proposed increase in the tax-free allowance and decried the failure of the fiscal reform to address widening social inequalities, arguing that there remains scope for well-founded tax relief for businesses and households.

The Future Forbes Realty Global Properties

ECB Launches Geopolitical Stress Tests For 110 Eurozone Banks

The European Central Bank is preparing a new round of geopolitical stress tests aimed at assessing potential risks to major financial institutions across the euro area. Up to 110 systemic banks, including institutions in Greece and the Bank of Cyprus, will take part in the exercise, which examines how geopolitical events could affect financial stability.

Timeline And Testing Process

Banks are expected to submit initial data on March 16, 2026. Supervisors will review the information in April, while the final results are scheduled to be published in July 2026. The process forms part of the ECB’s broader supervisory work to evaluate financial system resilience under different risk scenarios.

Follow THE FUTURE on LinkedIn, Facebook, Instagram, X and Telegram

Geopolitical Shock As The Primary Concern

The stress tests place particular emphasis on geopolitical risks. These may include armed conflicts, economic sanctions, cyberattacks and energy supply disruptions. Such events can affect banks through changes in market conditions, borrower solvency and sector exposure. Lending portfolios linked to regions or industries affected by geopolitical developments may face higher risk levels.

Reverse Stress Testing: A Tailored Approach

Unlike traditional stress tests that apply the same scenario to all institutions, the reverse stress test requires each bank to define a scenario that could significantly affect its capital position. Banks must identify a geopolitical shock that could reduce their Common Equity Tier 1 (CET1) ratio by at least 300 basis points. Institutions are also expected to assess potential effects on liquidity, funding conditions and broader economic indicators such as GDP and unemployment.

Customized Risk Assessments And Supervisor Collaboration

This methodology allows banks to submit risk assessments based on their own exposures and operational structures. The approach is intended to help supervisors understand how geopolitical events could affect institutions differently and to support discussions between banks and regulators on risk management and contingency planning.

Differentiated Vulnerabilities Across Countries

A joint report by the ECB and the European Systemic Risk Board indicates that countries respond differently to geopolitical shocks. The Russian invasion of Ukraine led to higher energy prices and inflation across Europe, prompting central banks to raise interest rates. Belgium, Italy, the Netherlands, Greece and Austria experienced increases in borrowing costs and lower investor confidence. Germany, France and Portugal recorded more moderate changes, while Spain, Malta, Latvia and Finland showed intermediate levels of exposure.

Conclusion

The geopolitical stress tests will not immediately lead to additional capital requirements for banks. Their results will feed into the Supervisory Review and Evaluation Process (SREP). ECB supervisors may use the findings when assessing capital adequacy, risk management practices and operational resilience at individual institutions.