In a sweeping overhaul aimed at bolstering the middle class and narrowing social disparities, President Nikos Christodoulides announced significant changes to Cyprus’s tax framework during a high-profile presentation at the Presidential Palace. The reform, designed to ease the tax burden on households and create a fairer system, promises substantial relief for both individuals and businesses.
Key Changes For Individuals And Households
- Higher Tax-Free Threshold:
The new reform increases the tax-free income limit from €19,500 to €20,500, giving individuals an extra €1,000 in tax-free earnings. - Revised Tax Scales:
The updated tax brackets are structured to better reflect current economic realities:- Up to €20,500 → 0%
- €20,501 – €30,000 → 20%
- €30,001 – €40,000 → 25%
- €40,001 – €80,000 → 30%
- Over €80,001 → 35% (an increase from the current threshold of €60,000)
- Targeted Tax Deductions:
For households earning up to €80,000 with two working spouses, the reform introduces:- A €1,000 deduction for each spouse/partner per child (up to 19 for girls and 21 for boys)
- A €1,000 deduction for each spouse/partner for each student (up to 23 for girls and 24 for boys)
- Up to €1,500 off installments for a serviced first home loan or rent per spouse/cohabiting partner
These measures are intended to provide critical support to families, particularly those with children and young adults, and help stimulate a more vibrant domestic economy.
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Corporate Adjustments
The reform doesn’t stop at individuals. President Christodoulides highlighted that the new policies will also impact the corporate sector:
- Dividend Tax Overhaul:
The deemed distribution of dividends will be abolished, and the withholding tax on actual dividends is set to drop to 5%. - New Corporate Tax Rate:
Concurrently, the corporate tax rate will be adjusted to 15%, a move designed to enhance competitiveness and align Cyprus’s tax regime with global standards.
A Strategic Shift For A Fairer Society
At the heart of the reform is a commitment to reducing social inequalities. “We have listened to the needs of our rural and urban communities alike,” President Christodoulides stated, emphasizing that easing the tax burden on households is key to fostering a more balanced and inclusive economy.
This integrated tax transformation, presented by the Minister of Finance, underscores the government’s strategy to not only stimulate economic growth but also to ensure that tax relief is calibrated to support families, promote entrepreneurial activity, and maintain a competitive business environment.
In a rapidly evolving global economy, Cyprus’s new tax framework represents a bold, forward-thinking move designed to empower its citizens and drive long-term prosperity.
