The Cypriot government has set in motion a substantial overhaul of its taxation system. Effective January 1, the state will begin withholding income tax from employee salaries under a new regime approved by the House last month. This change is part of a broader tax reform aimed at raising the tax-free threshold to €22,000 and granting enhanced tax deductions based on family composition and income levels.

Transitioning to a New Filing Process

Under the new system, taxpayers will submit their declarations reflecting these updated parameters for the 2026 tax year by 2027. Historically, tax returns have been filed between April and July 31, but from this year onward, the process will be managed through the Single Electronic System, Tax For All – replacing the previous taxisnet portal. Notably, the tax return for the 2025 tax year will retain the 2024 data, including the €19,500 tax-exempt threshold and existing tax brackets, meaning only those earning beyond these parameters will be required to file.

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Enhanced Allowances and Deductions

The reform brings significant changes beyond merely adjusting income thresholds. In addition to raising the non-taxable income to €22,000 and modifying tax bracket rates, a suite of new personal deductions will be introduced. These deductions, designed to ease the burden on Cypriot tax residents, will vary according to the number of dependents, educational status, rental expenses, mortgage interest payments on primary residences, investments in energy-efficient upgrades, and the purchase of electric vehicles.

The new allowances will be claimed via Form T.F.59, which details the computation of withheld taxes and social contributions as managed by employers. For example, families earning up to €100,000 (for those with no children or one to two dependents) or up to €150,000 for households with three to four children, and up to €200,000 for larger families, may be eligible for additional relief. Single individuals, meanwhile, must not exceed €40,000 in income. Specific deductions include €1,000 for the first dependent and student, €1,250 for the second dependent, and €1,500 for a third or any additional dependents. Deductions for mortgage interest and rent are set at €2,000, with a €1,000 incentive available for green investments.

Eligibility Criteria and Filing Requirements

Tax returns for the 2026 fiscal year will be mandatory for taxpayers with a gross income exceeding €22,000 who also qualify as Cypriot tax residents (present in Cyprus for more than 183 days). Additionally, all taxpayers between the ages of 25 and 71 will be required to file. However, the Council of Ministers retains the authority to exempt certain categories through legislative decree.

Eligibility for the new deductions will depend on a joint disclosure of tax information between spouses or partners with shared dependents. This consent, provided through a dedicated section in the tax return form, will ensure that the combined family income is evaluated against the established income thresholds. The calculation will include gross earnings from a variety of sources including employment, pensions, rent, dividends, alimonies, state benefits, and grants, excluding incomes from children, scholarships, and specific disability benefits. In cases of joint households, the income of the cohabitant will also factor into the overall assessment.

This comprehensive tax reform not only increases the income exemption threshold but also provides a more nuanced approach to personal deductions—ensuring that the fiscal system more accurately reflects the economic realities faced by households across Cyprus. This strategic shift aims to optimize the balance between state revenue needs and individual financial wellbeing.