Cyprus Personal 2026 Tax Reform Guide Cyprus: Understanding Personal Income Tax in Cyprus

In January 2026, Cyprus implements one of the most significant personal tax reforms of the past decade. The Cyprus Tax Department has issued an official Explanatory Guide clarifying how the new rules apply to individuals who are tax residents of Cyprus, with effect from the 2026 tax year (returns filed in 2027).

This article provides a clear, structured, and practical overview of the reform and its implications.

Official Guidance and forms can be found here: https://www.mof.gov.cy/mof/tax/taxdep.nsf/All/57E097D1492AEC77C2258D79003D503A?OpenDocument

(A) Scope of the Reform

The reform applies to:

• Individuals who are tax residents of Cyprus

• Cyprus residents earning local and/or foreign-source income

• Employees, self-employed individuals, pensioners, and private investors

The new rules apply from 1 January 2026 onwards and do not have retroactive effect.

(B) Mandatory Tax Return Filing – Fundamental Change

From tax year 2026, submission of a personal income tax return becomes mandatory for:

• All Cyprus tax residents aged 25–70, regardless of income level

• Any individual with gross income falling under Article 5 of the Income Tax Law

Exemptions: Individuals below 25 or above 70 are exempt only if they have no gross income.

This represents a major shift from the previous system, where many low-income individuals had no filing obligation.

(C) Revised Personal Income Tax Bands

The reform reshapes the progressive income tax structure and increases the tax-free threshold.

Tax bands applicable from 2026:

• Up to €22,000 → 0%

• €22,001 – €32,000 → 20%

• €32,001 – €42,000 → 25%

• €42,001 – €72,000 → 30%

• Over €72,000 → 35%

Key effects:

• Tax-free threshold increases from €19,500 to €22,000

• Middle-income earners benefit from a reduced effective rate

• The top marginal rate remains unchanged

(D) Introduction of New Personal Tax Deductions

A central feature of the reform is the introduction of new targeted deductions aimed at supporting households and sustainable investment.

Indicative deduction categories include:

• Dependent children

• Rent paid for a primary residence

• Interest on mortgage for a primary residence

• Energy-efficiency upgrades (e.g. insulation, photovoltaics)

• Purchase of electric vehicles

  
  

These deductions:

• Are claimed separately

• Do not reduce taxable income used to calculate contribution caps

• Are declared via Form Τ.Φ.59

Conclusion

The Cyprus Personal Tax Reform 2026 introduces:

• Broader filing obligations

• A higher tax-free threshold

• New targeted deductions

• Increased compliance and transparency

  
  

While broadly positive, the reform requires proper implementation and planning to ensure benefits are fully captured and risks avoided.