Cyprus is considering major tax reforms to “strengthen the middle class”, including an increase in income tax thresholds, alongside a series of deductions that “take into account the needs of households and the composition of the family”.

The proposals were announced by Cyprus President Nikos Christodoulides this week. He promised tax relief incentives for parents to aid with support for children, which he said would encourage the employment of women.

The Cyprus government plans to completely abolish deemed dividend distribution payments. The withholding tax on the distribution of actual dividends will be reduced to 5%. Corporation tax will increase to 15%, which will bring it in line with EU requirements.

Marios Andreou, Tax Partner and National Tax Policy Leader for PwC Cyprus, and President of the Cyprus-UK Business Association, was part of a team led by University of Cyprus that performed a holistic review of the existing regime providing recommendations to be considered by the government.

The last major tax reform in Cyprus occurred in 2003, which was negotiated with the EU as part of the accession process. That tax system, bar any amends dictated by EU directives or successive governments, has been in place ever since.

The new plan aims to modernise and simplify the tax system, align it with international standards, and maintain balanced tax revenues. It includes measures to reduce financial pressure on individuals and enhance business competitiveness, incorporating green and technology incentives.

The plan has been well received and is undergoing consultation phases, aiming for implementation in January 2026. President Christodoulides emphasised the reforms’ goals of fairness, social equity and boosting Cyprus’s global image.

“In the first consultation period the primary focus was in collecting views from the stakeholders on the existing provisions and for them to provide their suggestions,” Andreou explained. “The feedback was carefully considered and where possible was included in the list of  recommendations to be considered by the government. Now that the framework and the suggestions are out there, stakeholders can study them in a bit more detail and provide more specific feedback.”

He reiterated that the aim of the proposals was to create a fairer distribution of income and address social inequalities.

“Tax policy is not a neutral technical process, it is first and foremost a political act, a political decision that reflects the compass of social justice and development,” he said. “The aim, therefore, is to strengthen the real economy and the competitiveness of Cypriot businesses, which create well-paid jobs and, above all, strengthen people’s disposable income in a time of many challenges.”

For Andreou, being involved in this project was a great honour. “For me personally, it was interesting and very important to hear from all the stakeholders and appreciate the various angles from which they were all coming. I’ve gained a lot of new insights on various aspects of the Cyprus economy and on the impact that the tax regime has on each and every sector, which was a great learning experience.”