The House of Representatives in Cyprus has recently passed a new law introducing significant changes to the country’s income tax framework. These provisions, which will affect both individuals and companies, are designed to modernize the tax system and align it with evolving economic realities. The new tax regime is effective from 1 January 2026.
Below is a concise overview of the key amendments.
1. Personal Income Tax (PIT) Rates and Brackets
A major change for individuals is the adjustment of the personal income tax brackets, including an increase in the tax-free threshold.
| Income Bracket | New Rate (From 1.1.2026) | Old Rate (Up to 2025) |
|---|---|---|
| Up to €22,000 | 0% | Up to €19,500: 0% |
| €22,001 – €32,000 | 20% | €19,501 – €28,000: 20% |
| €32,001 – €42,000 | 25% | €28,001 – €36,300: 25% |
| €42,001 – €72,000 | 30% | €36,301 – €60,000: 30% |
| Over €72,001 | 35% | Over €60,001: 35% |
The tax-free income threshold has been raised from €19,500 to €22,000, offering a tax relief for lower-income earners.
2. New Income Tax Allowances and Deductions
The new law introduces several new deductions and allowances aimed at supporting families and promoting homeownership:
•Family with Children: Families with an annual income up to €100,000 (for one or two children) are eligible for additional deductions: €1,000 for the first child and €1,250 for the second child.
•Homeowners and Renters: A €2,000 deduction is introduced for loan interest payments for homeowners and for rent payments for renters.
•Stock Options: Gains arising from approved stock option schemes under employer programs will benefit from a significant deduction, resulting in an effective tax rate of 8% (92% deduction).
3. Corporate Income Tax (CIT) and Crypto-Assets
For legal entities, the most notable change is the increase in the Corporate Income Tax rate.
•Corporate Income Tax: The standard CIT rate will increase from 12.5% to 15%.
•Crypto-Assets Taxation: Profit derived from the disposal of crypto-assets will now be subject to a flat tax rate of 8% under the Corporate and Income Tax framework.
4. Special Defence Contribution (SDC) Amendments
The law also brings significant changes to the Special Defence Contribution (SDC), particularly for individuals.
| Income Type | Individual SDC Rate (From 1.1.2026) | Individual SDC Rate (Up to 2025) | Legal Entities SDC Rate |
|---|---|---|---|
| Dividends (Cyprus/Non-Cyprus) | 5% | 17% | Nil |
| Interest (Ordinary Activities) | Nil | Nil | Nil |
| Other Interest | 17% | 17% | 17% |
| Rental Income | 0% | 3% | 0% |
The most impactful SDC changes include:
•Dividends: The SDC on dividend income for individuals is drastically reduced from 17% to 5%.
•Rental Income: The SDC on rental income is completely abolished, dropping from 3% to 0% for both individuals and legal entities.
Disclaimer: This post provides a high-level summary of the key tax changes effective 1st of January 2026 in Cyprus. For more information and to understand the specific implications for your personal or corporate tax profile, get in touch with our team of tax professionals.