The Economics Research Centre of the University of Cyprus presented its suggestions (blueprint) for a tax reform to the government, members of the business community as well as to business associations and professional bodies.

This proposal is expected to undergo thorough scrutiny by the Ministry of Finance, which will subsequently submit it to the Council of Ministers for approval before the draft bills are filed with theHouse of Representatives.

It is anticipated that the Finance Committee of the House of Representatives will evaluate the draft bills prior to their presentation to the plenary for voting. These new laws are envisaged to start taking effect as of the tax year 2025 with full effect as of tax year 2026.

MAIN FOCUS OF THE SUGGESTIONS (Blueprint)

(Corporate) Income Tax Rate: The proposal includes an increase in the corporate income tax rate from 12.5% to 15% for all corporations.

Special Defence Contribution (SDC):

• The current deemed distribution rules will be annulled.

• The existing SDC on rental income will also be abolished.

• The SDC rate on dividends will be reduced from 17% to 5% for natural persons who are tax residents and domiciled in Cyprus.

• The current applicable period of non-domicile status will not alter. An option for extending the period will be provided with the imposition of an annual fee.

Stamp Duty: Stamp duty will be limited to agreements related to immovable property, as well as banking and insurance transactions.

(Personal) Income Tax: The current tax-free threshold of €19,500 will be increased to €20,500 per annum. The top tax band of 35% will apply to emoluments exceeding €80,000 (up from the current threshold of €60,000). Intermediary bands will be progressively taxed at rates of 20%, 25% and 30%, as per below:

Taxable income – €Tax rate – %

Up to 20,500		0

20,501 – 30,000		20

30,001 – 40,000		25

40,001 – 80,000		30

In excess of 80,000		35

Deductions will be granted:

• to parents with children / students based on income criteria;

• to individuals in respect of housing loans for their primary residence or rent payments;

• to families for green household upgrades.

Other recommendations:

• Stock Options: To be considered whether taxable at a lower tax rate at the time of exercise (subject to conditions).

• Ex-gratia payments: The employee to be taxed subject to a capped tax free amount with the employer having the right to claim the whole amount as tax deductible.

• Golden Hellos / Handshakes: The full amount will be treated as taxable for the employee and tax-deductible expense for the employer.

• Culture related donations and contributions: to be treated as tax deductible expense based on recommendations given by the Deputy Ministry of Culture.

• Tax residency – 60-days rule: the definition to be extended to cover individuals whose centre of business interests is Cyprus, irrespective of their physical presence.

Expenses incurred in Green Transition and Digital Transformation to be entitled to:

  • Super deduction for expenses claimed / capital allowances;
  • Accelerated depreciation;
  • Deductions for personnel training;
  • No restriction for carried forward losses arising from such expenses.

• Extension of period for carried forward of losses from 5 to 10 years (subject to restrictions).

• Current Insurance Premium Tax provisions to be annulled.

Green tax reform details will follow in due course while environmental mitigation measures remain under consultation.

It is noted that the tax reform does not aim to have any adverse effect on some of the favorable provisions included in the Cypriot tax legislation, including provisions for Notional Interest Deduction, Intellectual Property Box Regime, application of Group Loss Relief, Shipping Regime, 50% deduction for first employment in Cyprus and Non-Domiciled status of natural persons.