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Cyprus Tax Reform Delivers Substantial Gains For Taxpayers And Businesses

New Tax Regime Provides Immediate Relief

Approximately 200,000 taxpayers in Cyprus saw an increase in their net income with the January salary payments as a direct result of the recently implemented tax reform. In addition, it is projected that around 30,000 individuals will have zero income tax liability by 2026. According to Tax Commissioner Sotiris Markidis, these changes represent a comprehensive milestone with positive effects for both citizens and businesses.

Who Pays Less Tax Now

The new framework introduces a significant shift. Individuals without personal tax deductions will only be subject to income tax if their gross monthly income exceeds €2,100, placing Cyprus in a unique position within Europe. The reform also raises the tax-free threshold from €19,500 to €22,000 and introduces new personal deductions related to family income, housing, and green initiatives such as energy-efficient home upgrades and the purchase of electric vehicles. Together, these measures reflect a forward-looking fiscal strategy.

Benefits For Families And Businesses

The reforms extend tangible benefits to families as well as small enterprises. For example, a family of six with a total income of €130,000 could secure an annual tax advantage of approximately €7,000. Similarly, a single-parent household with three dependents may realize yearly savings of about €4,200. On the business front, the elimination of the deemed dividend distribution and a reduction in the Special Defence Contribution are anticipated to bolster the competitiveness of more than 30,000 small family-owned companies across the island.

Education And Implementation

To facilitate a smooth transition to the new system, the Tax Department has launched an intensive series of seminars. Over 10,000 participants are expected to attend these sessions by the end of February, ensuring that the reform is both well-understood and effectively implemented.

Bank of Cyprus Upgrade Signals Fresh Optimism For Greek And Cypriot Banks

Regional Banks Enter A More Favorable Cycle

Bank of Cyprus and Eurobank are well positioned to benefit from a renewed re-rating of Greek and Cypriot bank stocks, according to Cyprus-based investment firm Roemer Capital, which upgraded Bank of Cyprus to a buy rating and reaffirmed its positive view on Eurobank.

The firm cited easing geopolitical tensions, resilient economic growth in Greece and Cyprus, lower funding costs and Greece’s expected transition to developed-market status as the main factors supporting the sector.

Roemer Capital also lowered its cost of equity assumptions, updated its forecasts following first-quarter 2026 results and extended its valuation horizon to the end of 2027, raising target prices across its banking coverage.

Bank Of Cyprus Gets The Largest Upgrade

Bank of Cyprus received the biggest revision, with Roemer Capital upgrading the stock from hold to buy and setting a target price of €11.10, implying potential total upside of 27%.

The firm highlighted the bank’s strong capital generation, profitability and projected 100% dividend payout, describing it as the strongest capital-return story among the banks under coverage. Roemer Capital maintained its buy rating on Eurobank, assigning a target price of €4.90 and forecasting potential upside of 28%. The report said the bank is well placed to benefit from loan growth, improving operating performance and merger-and-acquisition synergies.

National Bank of Greece and Piraeus Bank also retained buy ratings, with expected returns ranging from 25% to 36%. Optima Bank was upgraded to buy, while Alpha Bank remained at hold on valuation grounds.

Why Growth Still Sets The Region Apart

According to Roemer Capital, Greek and Cypriot banks continue to benefit from stronger economic fundamentals than many western European peers. The report pointed to faster economic growth, healthier balance sheets, low levels of non-performing exposures, capital ratios approaching 20% and strong customer deposit bases.

Analysts expect performing loans across the sector to grow at a compound annual rate of 6% to 8% through 2028, supported by private investment, digitalisation, green manufacturing, supply-chain expansion and a gradual recovery in household lending.

The report also said the conclusion of lending under the EU Recovery and Resilience Facility is unlikely to materially affect credit growth, as banks have already shifted back towards traditional commercial lending. Roemer Capital expects Euribor to remain between 2.2% and 2.5%, a level it believes should support both lending activity and net interest margins.

Geopolitics, Valuation And Market Structure Support The Case

The report said improving geopolitical conditions have strengthened the investment outlook, noting that Brent crude prices have largely returned to pre-war levels while Greek government bond yields have stabilised at around 3.5%. Although geopolitical risks remain, Roemer Capital believes the likelihood of a major inflationary shock or significant pressure on bank profitability has eased.

Another important catalyst identified by the firm is Greece’s expected promotion to developed-market status by FTSE Russell, STOXX and MSCI over the coming months.

According to the report, the reclassification should improve liquidity and attract a broader base of international investors. Roemer Capital also said Euronext’s acquisition of the Athens Exchange is expected to strengthen market infrastructure and increase international visibility, particularly for Bank of Cyprus and Optima Bank.

The firm noted that Bank of Cyprus has already benefited from its Athens listing, with average daily trading value increasing from less than €400,000 before its September 2024 move to nearly €6 million afterwards.

Economic Momentum Remains A Core Tailwind

Roemer Capital said both Greece and Cyprus have moved beyond post-crisis recovery and are now supported by private-sector-led growth. For Cyprus, the report highlighted recent tax reform and efforts to simplify the legal and regulatory framework, while also noting that limited foreign banking competition continues to support domestic lenders.

Overall, Roemer Capital expects Greek and Cypriot banks to remain well-positioned for profitable loan growth over the coming years.

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