The government’s ambitious package of tax reforms, scheduled for introduction in early 2026, is now facing serious pushback from some of the most influential professional and business organizations in Cyprus. The Cyprus Bar Association, the Institute of Certified Public Accountants of Cyprus (ICPAC), and the Chamber of Commerce and Industry (KEVE) have all raised strong objections, warning that the new rules could harm competitiveness, reduce foreign investment, and create legal and constitutional uncertainties.
The proposals, which were released for public consultation in the summer, aim to modernize the country’s tax system, expand the tax base, and increase fairness in revenue collection. Yet, despite the government’s assurances that the reforms would simplify the system and relieve many households from tax obligations, the devil appears to be in the details.
Corporate Tax Rate: From 12.5% to 15%
Perhaps the most headline-grabbing measure is the plan to raise corporate income tax from 12.5% to 15%. Cyprus has long marketed itself as a low-tax jurisdiction within the European Union, using its 12.5% rate as a cornerstone for attracting international companies and investment funds.
The proposed increase would align Cyprus more closely with the global minimum corporate tax of 15% championed by the OECD and supported by the EU. However, accountants argue that while Cyprus may not be able to avoid this international trend, timing is everything. The concern is that raising the rate without offering counterbalancing incentives—such as tax credits for research, innovation, or green investment—could reduce Cyprus’ competitiveness compared to rival jurisdictions like Ireland, Luxembourg, or Malta.
Redefining Tax Residency: A Potential Minefield
Another controversial element is the expanded definition of tax residency for individuals. At present, Cyprus applies a straightforward “183-day rule” and, more recently, the “60-day rule,” which allows non-domiciled individuals to claim tax residency under specific conditions, provided they have sufficient ties to the country.
The proposed legislation introduces broader criteria that could render someone a Cyprus tax resident even if they are simultaneously considered resident elsewhere. Critics warn that this opens the door to dual tax residency conflicts. For example, a professional who spends part of the year in Cyprus and part abroad may suddenly find themselves liable to pay tax in both jurisdictions. Without robust double taxation treaties in place—or clear language limiting the reach of the new rules—business leaders argue this uncertainty could discourage foreign professionals and companies from establishing a base on the island.
The Powers of the Tax Commissioner
One of the most heavily criticized proposals relates to expanded enforcement powers for the Tax Commissioner. Under the draft bills, the commissioner would be granted authority to seal the premises of businesses with outstanding tax debts.
The Cyprus Bar Association has warned that this measure may be unconstitutional, as it would amount to an executive authority shutting down a business without prior judicial approval. Lawyers argue that while tax compliance is essential, such powers could be misused or applied disproportionately, threatening jobs and economic activity before a company has the chance to challenge the assessment in court.
Business leaders also stress that this move would worsen perceptions of legal certainty in Cyprus. For international investors, the idea that a tax dispute could result in their offices being sealed overnight raises red flags about the reliability and predictability of the local business environment.
Taxation of Retirement Scheme Payouts
Another provision sparking discontent is the planned taxation of lump-sum payments from retirement schemes. Currently, many employees and self-employed individuals rely on these one-off gratuities to supplement pensions. Under the draft law, any amount exceeding €20,000 would be subject to a 20% tax rate.
Professional associations argue this undermines retirement planning and penalizes long-serving employees who have accumulated benefits over decades. From their perspective, it discourages saving and clashes with the broader goal of encouraging individuals to plan for their old age, potentially leaving the state with greater future social welfare burdens.
Changes to Family Income and Deduction Thresholds
The reforms also propose to alter how taxable income and deductions are calculated, particularly for families and single parents. While the government has framed these changes as steps toward fairness—by increasing the general tax-free threshold from €19,500 to €20,500—accountants say the fine print matters.
Certain deductions and eligibility rules for dependents are being recalibrated, which could mean that while many households will benefit from higher thresholds, others—especially single-parent families—might lose out on existing allowances. This creates winners and losers within the system, fueling concerns about whether the reforms have been properly balanced.
Government’s Case: Broader Base, Fairer System
The Finance Ministry has defended the package, emphasizing that the new framework would exempt around 60% of taxpayers from paying income tax altogether, compared to about 45% under the current system. The government insists the reforms will create a more equitable balance between individuals and corporations, close loopholes, and enhance enforcement against tax evasion.
Officials also argue that by bringing Cyprus in line with international norms on corporate taxation, the country will avoid being blacklisted by other jurisdictions, thereby protecting its financial services sector in the long run.
The Road Ahead
With over 430 formal objections submitted during the consultation period, it is clear the government faces a difficult path to getting these bills through parliament unchanged. Influential stakeholders—including lawyers, accountants, and business leaders—have already signaled that they will use every legal and political tool at their disposal to water down or overturn the most controversial measures.
For now, the debate over Cyprus’ tax future pits two powerful imperatives against one another: the government’s need to modernize the system and secure revenue, versus the business community’s demand for predictability, competitiveness, and constitutional safeguards.
As negotiations continue, the outcome will shape not only government coffers but also Cyprus’ reputation as a place to live, work, and invest in the years to come.
If you believe these reforms may impact your business or personal tax planning, reach out to Savva & Associates and our team of tax specialists. We can help you navigate these changes, minimize risks, and ensure your tax strategy remains fully optimized under the evolving rules.
Please get in touch with our team at:
| Charles Savva Managing Director BA, MBA, TEP, CA [email protected] +357 22516671 | Mina Pieri Senior Manager FCCA, MBA [email protected] +357 22510207 | Makis Pavlou Account Manager FCCA [email protected] +357 22510257 |