Cyprus tax overhaul strengthens competitiveness and economic stability, KEBE says

The Cyprus Chamber of Commerce and Industry (KEBE) has welcomed parliament’s approval of Cyprus’ long-anticipated tax reform, describing it as a decisive step towards modernising the country’s fiscal framework and reinforcing its competitiveness.

In a statement issued on Monday, the chamber said the reform “marks a historic step” in upgrading the tax system at a time when the Cypriot economy is seeking sustainable growth and increased investment. KEBE said the adoption of the new legislation represents “a milestone modernisation that aligns the tax framework with the realities of the contemporary economy and lays the foundations for a competitive and sustainable economic model“.

According to the chamber, the reform “offers a historic opportunity to upgrade Cyprus’ competitiveness by reinforcing stability, transparency and the island’s international appeal as a business and investment destination”. KEBE also welcomed the fact that long-standing proposals put forward by the private sector were incorporated into the final legislative package, helping to shape what it described as a more functional and development-focused tax system.

Among the key measures highlighted by KEBE are the abolition of deemed dividend distribution and the reduction of the defence contribution on dividends to 5 per cent. These changes, the chamber said, “enhance predictability and investment confidence”.

Throughout the institutional consultation process, KEBE said it “prioritised legal certainty and stability in the business environment“. It added that “targeted interventions helped balance revenue-raising measures with clear limits and judicial oversight in order to protect healthy enterprises”.

The chamber also noted that the final framework avoided provisions that could have introduced uncertainty into the functioning of boards of directors or weakened Cyprus’ headquartering strategy. At the same time, it said the reform preserved incentives that support outward-looking business activity and the attraction of investment.

KEBE further emphasised the social aspect of the reform, pointing to the increase in the tax-free income threshold and the introduction of targeted family support measures. These steps are expected to “strengthen household disposable income and help address low birth rates”, which the chamber described as one of Cyprus’ most serious national challenges. It added that stronger social cohesion is essential for sustainable growth and a resilient domestic market.

“We believe that the approval of the tax reform marks a new starting point for the Cypriot economy,” the organisation said. It added that “KEBE acted with consistency, responsibility and well-documented proposals that were heard and incorporated into the new framework”.

“We remain committed to transparency and compliance, with the aim of accelerating investment, supporting innovation and strengthening small and medium-sized enterprises, the backbone of our economy,” KEBE said. The chamber also stated that it will continue to closely follow the implementation of the reform, positioning itself as “a reliable and institutional partner of the state in promoting economic progress and social prosperity”.

The comments follow Monday’s parliamentary vote approving five government bills that together constitute the most comprehensive tax reform in Cyprus in years. The legislation is due to come into effect next month.

Under the new framework, the personal income tax-free threshold will rise to €22,000, a range of deductions will be introduced for households and businesses, and the corporate tax rate will increase to 15 per cent.

Finance Minister Makis Keravnos said after the vote that the revised tax system will support continued economic growth, enhance competitiveness and provide effective support to Cypriot households, while also helping to attract high-quality foreign investment.

The reform also reshapes the defence contribution by abolishing it on deemed dividend distributions for profits generated after 2026, cutting it to 5 per cent on actual dividend distributions and removing it entirely on rental income. These changes are accompanied by anti-abuse provisions aimed at tackling concealed distributions.

Additional rules were approved covering the taxation of interest, dividends and the income of non-residents. Amendments reflecting proposals submitted by DISY, DIKO, DIPA and EDEK were also included. These incorporate wider tax allowances for children and raise the capital gains tax-free threshold to €30,000, with exemptions of up to €50,000 for the sale of agricultural plots.

While the bill relating to capital gains taxation was passed unanimously, the remaining measures were approved by majority vote. Opposition party AKEL criticised the process, arguing that the reforms provide limited relief for lower-income earners and were pushed through parliament without sufficient scrutiny.

By fLEXI tEAM