In an atmosphere of consensus, with positions on the principle from all involved bodies, but without positions of the parties within the meeting, the Minister of Finance, Makis Keraynos, presented the tax reform to the Parliamentary Finance Committee
Presenting the goals of the reform and the proposed changes, the Minister stated, among other things, that he remains open to the possibility of raising the family income ceiling at which tax deductions for natural persons are calculated to €90,000, from the €80,000 provided for in the proposed bills, noting that the cost is not prohibitive.
The President of the Finance Committee, Christiana Erotokritou, asked all the parties involved to submit a written note with their positions on the articles of the bills and set the next meeting of the Committee on the matter for November 17.
In this context, the MPs chose, within the Committee, not to make positions, waiting for the written positions of all bodies on the bills.
Presentation of reform
"We are ready to work productively together on the set of bills, to form a framework beneficial for the next generations, away from petty politics or other expediencies", said the Minister, starting the presentation of the tax reform. "We are willing to cooperate for a real improvement of the tax framework, without unfairly distorting competition and the sense of justice," he added.
Referring to the main goals of the reform, he said that they concern the fairer distribution and reduction of the tax burden for taxpayers and the reduction of inequalities, family support, addressing household challenges, such as housing, energy upgrading, strengthening the competitiveness of Cypriot businesses and the economy.
He also referred to the strengthening of tax compliance, the fight against the shadow economy, the maintenance of the regime of foreign investments, the attraction of productive investments, especially in the fields of new technology. He also spoke about the importance of maintaining the sustainability of public finances.
Referring to the extensive consultation that took place, he said that during the preparation stage of the study, the Center for Economic Research (CEC) of the University of Cyprus held more than 50 bilateral meetings with all agencies, while a series of meetings were also held with the Ministry of Finance until the last moment.
He noted that as part of the consultations, the bills were amended. Indicatively referring to some of the changes that came after the consultation, he pointed out the increase of the tax-free allowance from €20,000 to €200,000 for gratuity compensations, which had been requested by many bodies.
On the other hand, he also referred to points in which the Ministry sticks to its position even after the consultation, such as the taxation of the commercial activities of Provident Funds, citing tax justice and the fight against unfair competition.
Key bill changes
Then Mr. Keravnos briefly presented the changes resulting from the bills.
Regarding natural persons, he said that there is a horizontal increase in the tax-free allowance from €19,500 to €20,500. In cases where the annual family income is less than €80,000 (€100,000 for large families with more than 3 children or €40,000 for single parents), exemptions are provided for each spouse of €1,000 for each child and €1,000 for each student (€2,000 for single-parent families). The Minister presented relevant examples and how the tax paid by families differs, compared to the existing system.
As an example, he said that for a family with two children and a gross annual salary of €56,184, a tax of €2,150 is currently paid. With the proposed reform the tax is reduced to €396.
There are also discounts of €1,500 for interest on a serviced loan or renting a main residence and €1,000 for energy upgrades or the purchase of an electric car.
Also, the obligation to submit audited accounts for natural persons increases to €120,000 from €70,000.
With regard to legal entities, the Minister referred, among other things, to the abolition of the deemed dividend distribution on profits acquired after 1/1/2026 and the reduction of the rate of imposition of the extraordinary defense levy from 17% to 5% for profits after 1/1/2026, while the imposition of the extraordinary defense levy on rental income is abolished.
He added that for all businesses the tax rate is increasing from 12.5% to 15%, and in this way "we are in line with both the EU and the OECD", he noted.
In addition, a special method of taxation of profits from the disposal of cryptocurrencies is introduced, with a horizontal rate of 8%. Also, the loss carryover period is extended from 5 to 7 years.
Regarding measures against tax evasion, he said the aim is to encourage compliance and avoid abuses, but also tax justice. He referred to the rationalization of tax declarations, the payment of the tax due and the suppression of tax evasion and tax avoidance.
It also referred to an increase in charges to enhance voluntary compliance and for mandatory rent payment of more than €500 by wire transfer or electronic order. He also noted that the submission of a tax return is mandatory for people over 25 years of age, regardless of whether they have an income or not.
The possibility, if the need arises, of the Tax Commissioner to request bank details is also strengthened.
Economic impact of measures
According to the Minister, initially the KEO proposal was surplus by €112 million. Based on the government's decisions and adjustments in the context of the consultation, the reform is fiscally neutral, with a small surplus of €18 million.
Specifically, Mr. Keravnos said that the government did not adopt two proposals of the KEO. The first concerned the imposition of a tax on companies that would bring in €50 million in revenue and the proposal for a real estate tax for properties worth more than €3 million that would bring in €54 million in revenue.
Regarding the non-adoption of the company tax, he said that it was not adopted because it was contrary to the principle of equal treatment and fiscal justice to the minimum tax of €800 that was proposed, noting that such a thing is not applied in any other European country. He also added that the government recently agreed to abolish a corresponding tax of €550 and it was not considered right to come back with a higher amount.
Regarding the real estate tax, he said that the issue is itself a matter of broad reform, which can be carried out at a later stage, since the fee was abolished in 2017 and in case of its reinstatement, a broad study must be carried out to avoid double taxation.
Responses to opinions expressed publicly
Mr. Keravnos also responded to statements that have been heard recently in the media regarding the reform.
As for the lower classes, which are not affected by the reform, he mentioned the reduction of the VAT rate on electricity and basic necessities, but also on upcoming changes to the child benefit.
Regarding the non-inclusion of VAT in the reform, he said that indirect taxation is strictly delimited by the European acquis.
Asked how the ceiling of €80,000 in family income for discounts was determined, he said the JIT was based on statistics in order to cover the real middle class of Cyprus. "I would not be negative if the limit goes to €90,000, since the cost is not prohibitive," he noted.
He also mentioned that the cost for the horizontal increase of the tax-free amount amounts to €30 million per €1,000.
Responding to suggestions for the adoption of family income, he said that the proposal does not promote women's work and does not support gender equality. He noted, moreover, that the reform gives relief to both spouses, based on their income.
To a question after the meeting, if there is room for the bills to be voted on in early 2026, the Minister said that "it is the intention of everyone, both the Parliament and the government and all those involved in the issue, to have the possibility to implement it from the beginning of 2026".
Asked if the passage of the reform is related to the release of funds from the Recovery and Resilience Fund for the milestone of ending aggressive taxation, he said there is a window until August 2026 for this milestone.
Asked to comment on whether he was open to any changes, he said that is what the consultation is for and "if there are issues that have escaped us or are in the right direction and within the capabilities of the economy, we are open to hearing them".
Carrier locations
The Commissioner of Taxation, Sotiris Makridis, said that society expects this reform and it is important to understand and vote on the provisions that contribute to the expansion of the tax base, the fight against tax evasion, and the increase of tax compliance.
On behalf of the Legal Service, Eleni Symeonidou said that there were provisions that were innovative, "unprecedented in law" and asked that if anyone gives positions on legal issues, they should give them in writing so that they can be studied by the Legal Service and formulated accordingly.
Gender Equality Commissioner Jozi Christodoulou said the reform promotes equality.
A spokesman for the State Aid Commissioner said there were two issues which could be considered state aid and should be looked into.
The President of the Fiscal Council, Michalis Persianis, said that a serious effort was made for an issue that has been pending for years. He expressed concern that the pressures on social benefits could increase significantly over the next 2-3 years because low incomes do not benefit.
He also emphasized that if amendments are made by the Parliament, an impact assessment should definitely be requested in order to understand what each amendment entails financially.
In addition, he said that pillar 2 and 3 of the pension could be dealt with more strongly.
He emphasized that the reform started from the need to go to 15% corporate tax and to adopt green taxes. Therefore, he said, for these two provisions the amendments should be avoided.
A representative of the CSE said that as part of the reform, the CSE must be strengthened, in view of privatization. Besides, he said, transparency of financial statements is ensured through the stock exchange, which facilitates income tax.
The trade unions say the reform is counterweighted
The representatives of the guilds said that the reform is disproportionately in favor of legal entities and at the expense of natural persons.
The General Secretary of PASYDY, Stratis Mattheos, said that the bill mainly benefits the companies in relation to the employees. "With the same incomes of the employee and the company, it is ten times the benefit of a company," he said.
He added that tax scales also need to be reviewed.
A PEO representative also said that the reform is balanced and favors businesses and shareholders. "We disagree that it does not reduce the horizontal indirect tax burden, such as consumption taxes and VAT that have an unsustainable impact on the lower income strata," he said.
He added that the tax-free has remained stagnant since 2008, while public finances allowed for 2-3 increases from 2017 to 2025. He also noted the disagreement with the non-inclusion of other KOE proposals, such as the tax on immovable property, the tax on legal entities and non domiciles.
The CEO of the SEC, Andreas Matsas, said that if one compares the main tax reliefs for natural persons with the corresponding reliefs for legal entities, there is a heterogeneous relationship and approach. He also noted that there is a contradiction in providing incentives to businesses, in relation to the discussion on ATA.
He also said that the two recommendations of the KOE should have been adopted regarding the business fee and real estate tax for properties over 3 million. "These two taxes would have brought an additional benefit to the state of €104 million which could be given compensatory to the support of the 49% of workers who are below the taxable income and have no benefit", he noted.
He also proposed the further increase of the tax-free amount to €22,000, while regarding the taxation of the business activities of Provident Funds he said that it presents a burden at a time when "we are trying to create conditions for the expansion of the institution, in combination with pension reform".
A representative of SELK referred to the philosophy of the reform as a tool of macroeconomic and social policy, but also of providing assistance to the country to improve competitiveness and attract investments and business activities. He noted that the Association is still working on the bills as they were formulated after the consultation, in order to submit their positions in writing.
The KEBE said it supports the basic philosophy and goals of the reform. "We are asking for adjustments to individual issues that will be affected to ensure the competitiveness of Cyprus as a business and investment destination," said his representative.
A representative of the Pancypriot Bar Association said that a real transformation had to come in a single, simplified and modern text of legislation, to bring competitiveness to the levels "we all want". Instead, 6 bills came, with “piecemeal amendments to an overburdened tax system. We feel that an important opportunity to pioneer has been missed," he said.
He noted that after the consultation the bills are improved. "Our aim is to have a tax framework that is clear, fair and understandable for the ordinary citizen and the small entrepreneur, who cannot afford to pay tax consultants," he said.
The Banking Association stated that it is studying the changes and will come back in writing, noting that it also expects the position of the Commissioner for Personal Data Protection on the issues concerning the banks. He also added that the complexity of the tax landscape and the administrative burden seem to be increasing.
The Cyprus Maritime Chamber expressed satisfaction that the reform leaves the maritime industry intact, as the existing tax framework is "our greatest asset".
A representative of the OEB said that the tax reform is necessary and that with the increase of the corporate tax to 15%, businesses are also burdened, even though they get some discounts. "The goal is and must remain competitiveness and investment attraction. There are individual issues that are in a gray area, you have to see them as a committee so that everyone is treated fairly," he said.
CIFA said that its recommendations were not heeded and that the issue of taxation on the redemption of investment funds will not have a positive sign for Cypriot investors.
The Association of Insurance Companies of Cyprus referred to "points of concern, which mainly concern the citizens, not the insurance companies", noting that a large number of fellow citizens use insurance products for savings.
The Tax Council said the reform is in the right direction, as it "modernizes and upgrades substantially". He noted that it is important to have provisions without ambiguity and expressed readiness to take on even more tax legislation.
The representative of the Cyprus Property Owners Association said that property remains by far the most heavily taxed asset.
The Pancypriot Organization of Multiple Children said that "we were pleasantly surprised that the family income for families with multiple children is increasing to €100,000". They noted, however, that it is not satisfactory and does not reduce "the unbearable burdens from the great wrongdoers of the previous 20 years, the large families". They asked that inflation be taken into account.
The Pancypriot Association of Professional Insurance Intermediaries (PSEAD) said that initially "none of our suggestions were listened to", while in a recent meeting with the Tax Commissioner "we introduced important provisions", such as the tax exemption of up to €500 for property insurance. In this, he said, the devastating fires of Limassol played a role.
Finally, a representative of PEK, which, as he said, represents all the agricultural organizations that will file a joint memorandum, said that "we expected a different treatment for farmers, especially professionals, and agricultural income."
He noted that it is "unthinkable" to tax the incentives given to settle new farmers and the hectare subsidies.
Locations of MPs
In her statements after the completion of the Committee, the President, Member of Parliament of DIKO, Christiana Erotokritou, said that the discussion in the Finance Committee will be detailed.
"We will exhaust all the margins, to have the opportunity to exercise parliamentary control, without putting in front of us any restrictions," he said, noting that the best would be to vote on the reform as a single whole within 2025. "I cannot prejudge how the debate will develop in the Finance Committee," he said.
DIKO, he added, maintains that there is an urgent need for a tax reform, bearing in mind that the last one took place 22 years ago and that the perspective of the economy must allow the correction of mistakes and pathologies, the correction of incentives and the return of tax relief, especially to the middle class and the lower income strata. "To a fairly satisfactory extent for now it is achieved with what we have in front of us," he said.
DISY Member of Parliament, Savia Orfanidou, said that "unfortunately, the tax reform bills came to the Parliament with great delay. Despite this, we have decided to work intensively, because tax uncertainty for such a long time burdens the economy".
He noted that the general direction of the tax reform satisfies DISY. "Reducing the tax burden on the middle class, families with children, students and Cypriot businesses have long been our priorities." He added that some provisions seem to have been corrected "after our own reaction, as well as that of several actors in the economy", noting, however, that there are still points that need improvement.
AKEL Member of Parliament, Aristos Damianou, said that it is AKEL's firm position that the tax policy must be based on a series of stable axes: to provide the state with sufficient revenue for the implementation of an integrated social and economic policy, to be socially fair and to function as a tool for mitigating income inequalities, to function as a catalyst for sustainable economic development, but also to lead to a reduction in tax and administrative weight, to be effective in order to deal with tax evasion and tax avoidance and to operate with a view to sustainability, respect for the environment.
He added that as far as green taxes are concerned, they should not be distributed disproportionately at the expense of the lower and middle classes and small and medium enterprises.
"I regret to note that the government's demand that its proposals for tax changes be summarily approved is out of step with the seriousness of the matter," he said. "We, respecting ourselves and the citizens of the state who elected us, will make the discussion in the Finance Committee in a creative way, productive, submitting a series of positions and proposals for changes on the government bills", he noted.
He added that the Christodoulidis government "refuses to use tax tools to fairly and effectively support the people. "He refuses to tax accumulated wealth, super profits, he refuses to permanently and drastically reduce VAT on electricity, fuel and basic goods so that the world can breathe, he refuses to withdraw the so-called green taxes on fuel, water and waste, which will put even more pressure on the vast majority of society and vulnerable groups of the population," he noted.
The Member of Parliament of ELAM, Sotiris Ioannou, said that the top priorities of ELAM in relation to the tax reform are the support of Cypriot businesses, young workers, the support of the Cypriot family.
For this reason, he said that just as they submitted their own amendments to the Ministry of Finance, they will do the same in the debate in the Parliament, with the aim of "increasing the tax-free amount to €23,500 in order to be consistent with today's inflationary data, further increasing the tax reliefs per child and abolishing the ceiling of €80,000 for receiving tax reliefs in relation to children". Besides, he added that as far as children are concerned, any tax relief must be done without income and restrictive criteria.
"The purpose of our proposals is to deal with the demographic problem, the low birth rate, to support the Cypriot family and, as far as Cypriot businesses are concerned, to deal with the unfair competition they have been experiencing in recent years, mainly with illegal trade from the occupied territories," he said.
EDEK Member of Parliament, Ilias Myrianthous, said that many proposals submitted by EDEK have been incorporated into the tax reform. "Nevertheless, there are several points that need clarification." With regard to low family incomes that "do not seem to be of any benefit", we believe that some regulation should be found so that these citizens "receive some support through state policy", he said.
As far as businesses are concerned, Mr. Myrianthus noted that there is a very positive approach to the requests that had been submitted by the various parties.
"The discussion must be held as quickly as possible, without making any deductions, so that it is voted before the end of the year, so that it can be implemented from 2026. As EDEK, we will contribute positively so that this reform project in the tax reform succeeds and is voted," he said.
The Member of Parliament of DIPA, Alekos Tryfonidis, expressed his satisfaction, as important recommendations of DIPA have been incorporated. He noted, however, that tax reform alone cannot solve all the tax issues facing the country, noting that about 50% of citizens are below the current tax-free bracket and will not benefit, while being asked to pay increased taxes due to increased green taxes.
"Challenges related to the low-paid and low-pensioners, housing, low birth rates, support for large and single-parent families, the disabled and SEN recipients, require targeted policies," he said. He added that DIPA will continue to exert pressure on the government to promote specific and effective measures that provide a solution to the above.
"DIPA will work with responsibility and creative cooperation in the Parliament, so that the laws are passed on time and put into effect from 1/1/26".
