The government is moving closer to implementing tax reform from 1 January 2026, as the President of the Republic wants, after yesterday placing six bills for public consultation which will turn taxation of individuals and legal entities upside down.
Interested parties will be able to submit their comments on the bills until 25 August, so they can be studied and submitted to Parliament in September.
According to a related announcement, tax reform constitutes one of the most critical pillars for the government in shaping a fair, efficient and sustainable economic system.
As emphasised in the announcement, the aim of tax reform is not only maintaining public revenues but also ensuring social justice, strengthening entrepreneurship and combating tax evasion.
Through proper implementation of reform measures, the government seeks to upgrade the operation of the tax mechanism, strengthening citizens’ trust and economic stability.
From initial analysis of the bills which philenews proceeded with, it appears clearly that beyond the changes announced to date regarding the increase of tax-free allowances, change of tax brackets and granting of tax deductions, weapons are also being given to the Tax Department to chase tax evaders.
Among other things, share seizures, business sealing, the ability for debtors to transfer their property to the state for settlement of their tax debts and increases in monetary fines are provided.
Deductions for taxpayers
In detail, the bills provide the following:
With the amendment to the Income Tax Law, it is provided that for purposes of calculating the taxable income of a person who is a resident of the Republic, deductions will be granted, provided the family income does not exceed €80,000 and, in the case of single persons, does not exceed €40,000.
Specifically, for each dependent child, each parent will receive a deduction of €1,000, whilst in the case of a single-parent family or in the case of parents who are not spouses or cohabitants and one parent has full custody of dependent children, a deduction of €2,000 per dependent child is granted to the parent with custody, excluding students, and no deduction is granted to the parent without custody.
A tax deduction of €1,000 for each student will be received by parents (€1,000 each) who are not spouses. Additionally, each spouse, cohabitant or single person will receive a tax deduction of €1,500 for interest paid in relation to a serviced housing loan within the Republic or to cover the expense for rent paid in relation to the use of the main residence.
Tax deductions will be granted to taxpayers whose permanent residence is in the Republic, the loan is with a bank in Cyprus and they do not own another residence in the country. It is noted that the tax deduction will be reduced if the taxpayer receives any other grant from the state.
An additional tax deduction of up to €1,000 will be received by each taxpayer for expenses for energy efficiency of their main residence, for renewable energy systems and for electric vehicles.
Tax brackets are also changing, according to which no tax will be imposed on annual incomes up to €20,500, from €20,501 to €30,000 the tax will be 20%, and for incomes from €30,001 to €40,000 the tax rate will be 25%.
For incomes from €40,001 to €80,000, tax of 30% will be imposed, and for incomes beyond €80,000, the tax will be 35%.
The bill provides for taxation of gains from cryptocurrencies. Granting incentives for employers to provide shares to employees. Meanwhile, corporate tax increases to 15%.
Abolition of defence contribution
The bill on Special Defence Contribution – Abolition of special defence contribution provides for the abolition of special defence contribution.
It provides for the abolition of deemed dividend distribution and reduction of withholding tax on actual dividend distribution to 5%. Furthermore, with the Capital Gains bill, no payment of capital gains tax for property exchange is provided.
Increase of tax-free allowance
The bill on Tax Assessment and Collection provides that the obligation for submitting tax returns applies to individuals and legal entities with annual incomes of €20,500.
Consequently, today’s tax-free allowance increases by €1,000. Meanwhile, the Council of Ministers, by decree, will be able to determine specific categories of taxpayers (individuals) who will be exempted from the obligation to submit income tax returns.
Based on the bill, taxpayers will have the obligation to keep any documents and records included in the return for a period of eight years. Additionally, a taxpayer who submits their tax return 30 days before the deadline will be granted a tax credit of €10.
Meanwhile, taxpayers have the obligation to register in the tax register to ensure a tax identification number. Also, financial institutions and credit acquisition companies, after a related request, will submit information and data to the Tax Commissioner for taxpayers.
Will seal premises
At the same time, the Tax Department will have the ability to seal business premises in case they do not pay their taxes or issue accurate invoices and receipts, whilst they did not proceed to issue them for transactions exceeding €500.
Additionally, businesses will be sealed when tax inspection is obstructed through use of force or threats. In this case, the judge will issue suspension and sealing orders for the business for 48 hours.
It is noted that notices will be posted on businesses that will be sealed. Additionally, employers must submit monthly withholding declarations for taxes and contributions for each employee.
A new article was added to the law by which an indictment can be registered by the Tax Commissioner before the District Court for tax offences to interested persons through an electronic system.
The bill also increases administrative fines, in some cases up to three times. It includes precautionary measures for taxable remuneration of directors.
Share seizures and property exchanges
The Tax Collection Bill provides that in case any person refuses, neglects, delays or fails to pay the Tax Commissioner the owed tax, which exceeds €3,000 for more than 30 days from the day it is payable, the taxpayer’s shares will be seized and the state will be able to take their property.
That is, according to the bill, the Tax Commissioner can proceed to seize the debtor’s ownership in shares of legal entities. Meanwhile, share seizure will function as security for payment of owed tax by depositing with the Registrar of Companies a note signed by the Tax Commissioner claiming that the specific person’s interest in the shares remains bound for payment of owed tax.
Shares cannot be transferred whilst they are bound. According to the bill, the debtor can either submit an objection to the Commissioner for review of the seizure or submit an application to the Court for lifting the seizure.
During the validity of the seizure registration, the person’s tax and other obligations which may arise from holding the shares continue to exist.
The bill provides for stricter measures, according to which if the tax debt exceeds €10,000, the Finance Minister after an application submitted to him or to a person authorised by him, and following a proposal by the Tax Commissioner and decision by the Council of Ministers, may accept property transfer to the Republic’s benefit against the debts.
As noted, the procedure for accepting property transfer to the Republic’s benefit against debts is promoted when the determined value of the property does not deviate beyond 20% from the owed tax amount or any other amount of additional tax, monetary charges and interest.
Finally, with the bill amending the Stamp Duty Law, related fees are differentiated, with a minimum value of €5 and a maximum stamp value of €20,000.
