Cyprus Income Tax Reform 2026

Cyprus Tax Reform 2026: Individual Impact

The Cyprus Income Tax Reform of 2026 represents the most significant overhaul of the island’s fiscal framework in over two decades. Formally enacted in late 2025 and effective from January 1, 2026, the reform is designed to modernize the economy, and provide targeted relief to middle-income earners and families.

For individuals, the changes are profound, shifting the focus from a rigid progressive scale to a more flexible system that incorporates family-based deductions, “green” incentives, and reduced rates for investment income.

Content of our article about the Cyprus Income Tax 2026 for Individuals comprises the following subjects:
1. Cyprus Income Tax 2026: Revised Personal Income Tax (PIT) Brackets
2. Cyprus Income Tax 2026: New Targeted Family and Household Deductions
3. Cyprus Income Tax 2026: Radical Changes to Investment and Rental Income
4. Cyprus Income Tax 2026: Emerging Assets: Crypto and Stock Options
5. Cyprus Income Tax 2026: Changes for Non-Domiciled Individuals
6. Cyprus Income Tax 2026: Employment Termination and Pensions
7. Cyprus Income Tax 2026: Capital Gains and Compliance
8. Comparison of a Middle-Class Annual Taxes and Levies Calculation Before and After the Tax Reform

Cyprus Tax Legislation (in Greek only)

1. Cyprus Income Tax 2026: Revised Personal Income Tax (PIT) Brackets
The cornerstone of the 2026 reform is the increase in the tax-free threshold and the recalibration of tax bands. This move is specifically aimed at mitigating the impact of inflation on disposable income.

Taxable Annual Income (€) Tax Rate (%) Cumulative Tax (€)
0 – 22,000 0% 0
22,001 – 32,000 20% 2,000
32,001 – 42,000 25% 4,500
42,001 – 72,000 30% 13,500
Over 72,000 35% —

Key Takeaway: The tax-free limit has been raised from €19,500 to €22,000. This means an individual earning €25,000 will now only pay tax on €3,000, significantly increasing net take-home pay for lower and middle-income workers.

2. Cyprus Income Tax 2026: New Targeted Family and Household Deductions

In a departure from the previous “one-size-fits-all” approach, the 2026 reform introduces income-tested deductions. These are available to residents whose Gross Family Income (the combined income of both spouses/partners) falls below specific thresholds.

Income Eligibility Thresholds
• Families with no or up to 2 children: Up to €100,000.
• Families with 3 or 4 children: Up to €150,000.
• Families with 5+ children: Up to €200,000.
• Single individuals (no children): Up to €40,000.

Specific Allowances (Per Parent/Spouse)
If the family income criteria are met, each spouse can claim:
• Child Allowance: €1,000 for the 1st child, €1,250 for the 2nd, and €1,500 for each subsequent child.
• Education: “Dependent children” now officially include students up to the age of 24.
• Housing: A deduction of up to €2,000 for interest paid on a primary residence mortgage or for rent paid on a primary residence.
• Green Transition: Up to €1,000 for capital expenditure on energy upgrades (solar panels, insulation) or the purchase of an electric vehicle.
• Home Insurance: A deduction of up to €500 for insurance premiums against natural disasters (fire, earthquake, etc.), notably available without income restrictions.

3. Cyprus Income Tax 2026: Radical Changes to Investment and Rental Income
The Special Defence Contribution (SDC), which historically placed a heavy burden on tax-resident and “domiciled” individuals, has been drastically reduced or abolished in several areas.

Dividend Income
For individuals who are both tax resident and domiciled in Cyprus, the SDC on actual dividend distributions has been slashed from 17% to 5%.
Note: “Non-dom” individuals continue to enjoy a 0% tax rate on dividends and interest, maintaining Cyprus’s status as a top-tier destination for international HNWIs.

Abolition of Deemed Dividend Distribution (DDD)
For profits earned from January 1, 2026, onwards, the DDD rules—which forced companies to pay tax on “notional” dividends if they didn’t distribute profits—are entirely abolished. This allows business owners to retain profits for reinvestment without triggering personal tax liabilities.

Rental Income
The SDC on rental income (previously 2.25% effective rate) is abolished. Rental income is now only subject to:
1. Personal Income Tax (at the progressive rates mentioned above).
2. GHS (General Healthcare System) contributions at 2.65%.

4. Cyprus Income Tax 2026: Emerging Assets: Crypto and Stock Options
Recognizing the growth of the digital economy, the 2026 reform provides long-awaited clarity on modern remuneration and investment.

• Cryptocurrency Tax: Profits from the disposal of crypto-assets are now taxed at a flat 8% rate. Losses can be offset against crypto profits within the same year but cannot be carried forward.
• Employee Stock Options: Gains from approved employer share schemes are also taxed at a flat 8%, provided the benefit does not exceed twice the employee’s annual salary (capped at €1 million over 10 years).

5. Cyprus Income Tax 2026: Changes for Non-Domiciled Individuals
The 17-year “Non-Dom” window remains a flagship incentive, but the 2026 reform adds a new “extension” option for those reaching the end of their term.
• Lump Sum Extension: After the 17-year period, individuals can now opt to extend their non-dom benefits for an additional 5+5 years by paying a flat annual lump sum of €250,000. This allows long-term residents to maintain their exemption from SDC on dividends and interest.
• Simplified Residency: The “60-day rule” for tax residency has been simplified; applicants no longer need to provide proof that they are not a tax resident in another state, reducing administrative friction.

6. Cyprus Income Tax 2026: Employment Termination and Pensions
• Ex-Gratia Payments: Lump-sum payments upon termination of employment are now exempt from tax up to €200,000. Any amount exceeding this is taxed at a flat 20%.
• Foreign Pensions: Individuals receiving pensions from abroad can still elect to be taxed at a flat 5% on amounts exceeding €5,000 (previously €3,420), or opt for the standard progressive rates if that is more beneficial.

7. Cyprus Income Tax 2026: Capital Gains and Compliance
The reform has increased the lifetime exemptions for Capital Gains Tax (CGT) on the sale of Cyprus-situated immovable property:
• General Exemption: Increased to €30,000 (from €17,086).
• Primary Residence: Increased to €150,000 (from €85,430).

Compliance “Teeth”
The Tax Commissioner now has expanded powers. From 2027, failure to submit returns or pay significant debts (over €20,000) can result in the sealing of business premises. Furthermore, all tax residents over age 25 are now mandated to file an annual tax return, regardless of whether their income exceeds the tax-free threshold.

8. Comparison of a Middle-Class Annual Taxes and Levies Calculation Before and After the Tax Reform
To illustrate the tangible impact of the 2026 Tax Reform, let’s compare a “middle-class” scenario: a married professional earning a gross annual salary of €50,000, with two children, paying €800/month in rent, and holding home insurance.

Scenario: The “Modern Family” Comparison
• Profile: Resident, Domiciled, 2 Children, €50,000 Gross Salary.
• Assumptions: Standard Social Insurance (8.8%) and GHS (2.65%) apply to both years.
Component 2025 (Old Rules) 2026 (New Reform) Difference
Gross Salary €50,000 €50,000 —
SI & GHS (Approx.) (€5,725) (€5,725) —
Family Deductions €0 (€2,250)* +€2,250
Housing (Rent/Int.) €0 (€2,000)** +€2,000
Home Insurance €0 (€500) +€500
Taxable Income €44,275 €39,525 -€4,750
Total Income Tax €5,092 €3,881* -€1,211
Effective Tax Rate 10.1% 7.7% -2.4%
*Deductions: €1,000 (1st child) + €1,250 (2nd child). Calculation based on the new 2026 brackets.

Breakdown of Savings
Under the new system, this individual saves €1,211 per year in income tax alone. This is achieved through three specific layers of the reform:

1. The Bracket Shift
In 2025, the 30% tax bracket started at €36,301. In 2026, that same 30% rate doesn’t kick in until you exceed €42,001. By pushing the higher rates further up the income scale, the government has effectively shielded more of your “middle” income from the heaviest taxation.

2. The Power of Family-Linkage
Previously, deductions for children were largely handled via social welfare payments (Child Benefit) rather than the tax code. By moving these into direct tax deductions, the 2026 reform provides immediate relief at the payroll level.

Important: These deductions apply to each spouse if the total family income is under the threshold (e.g., €100,000 for 2 children), potentially doubling the household benefit.

3. Housing and “Green” Relief
For the first time, rent and mortgage interest are recognized as deductible expenses (up to €2,000). This acknowledges the rising cost of living in urban centers like Limassol and Nicosia.

Business Owner Comparison: The SDC Impact
If you are an individual who also receives dividends from a local company, the savings are even more dramatic.
• Scenario: You receive €20,000 in dividends.
• 2025 Tax (17% SDC): You would pay €3,400.
• 2026 Tax (5% SDC): You would pay €1,000.
• Net Gain: €2,400 extra in your pocket.

When you combine the personal income tax savings with the reduced dividend tax, a resident business owner could easily see an annual boost of €3,500 – €5,000 in net disposable income.

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