Tax Overhaul in Cyprus Omits 60% of Workers Earning Less Than €20,500
Under the forthcoming tax reform in Cyprus, effective from January 1, 2026, low-income workers and families will see significant changes aimed at providing relief and support.
One of the key measures designed to benefit low-income workers is an increase in the tax-free income threshold from €19,500 to €20,500. This adjustment means that individuals earning up to €20,500 will pay no income tax, offering immediate relief to low-wage workers.
The reform also introduces new progressive tax brackets, with the 0% rate applied up to €20,500, followed by higher rates ranging from 20% to 35% for income above this threshold. This structure is intended to be fairer and more supportive of those at the lower end of the income scale.
In addition, there are targeted tax deductions aimed at families with joint income up to €80,000. These incentives include €1,000 per working spouse for each child and mortgage or rental deductions related to the first home. These measures are designed to ease family financial burdens and promote sustainable living and homeownership.
Furthermore, up to €1,500 per spouse can be claimed for home loan or rent payments, providing additional assistance to families.
President Christodoulides has reiterated that the tax reform will be implemented on January 1, 2026. Four bills related to the tax reform are being prepared and are expected to be completed by next Friday.
The tax reform also includes other changes, such as the abolition of the 1.5% insurance premium tax for insurance companies and a proposal to tax cryptocurrencies, except when classified as capital gains.
However, it is important to note that the tax reform does not address the concerns of low-income earners earning less than €20,500 annually, despite repeated assurances that this segment "would receive special attention."
Moreover, the €270 million in additional revenue generated by the corporate tax hike will not be distributed to workers earning less than €20,500 annually.
The Finance Minister, Makis Keravnos, has stated that targeted measures for low-income workers will come under the green taxation framework. The exact details of these measures are yet to be announced.
A business owner currently receiving €80,000 annually in dividends would save around €10,000 annually under the new system, while the fiscal cost of these changes is projected at €150-€170 million from individual taxpayers and €230-300 million from reduced defense contributions.
[1] Source: Cyprus Ministry of Finance press release, dated October 1, 2025.
- The Finance Minister has announced that targeted measures for low-income workers will be included under the green taxation framework, aiming to provide further support to this segment.
- Despite the tax reform's focus on families, there is no specific relief or assistance for EU citizens based in Cyprus who are earning less than €20,500 annually.
- Under the forthcoming tax changes, certain business owners in Cyprus can anticipate savings of approximately €10,000 annually due to the new tax system, although the exact details of these measures for low-income workers are yet to be disclosed.
