The Ministry of Finance has made 33 amendments and removed several “problematic” provisions from its tax reform legislative package, which is expected to facilitate its approval by parliament without delays or disruptions.
Government sources, speaking to “Phileleftheros,” said the bills now include safeguards that secure an effective new tax system ensuring public finances while providing necessary support for taxpayers and businesses.
The amendments were made possible through consultations between the Tax Commissioner and stakeholders.
Yesterday, the Cabinet approved the six tax reform bills, which will be fiscally neutral. Despite the many tax deductions granted on income tax for thousands of taxpayers and the reduction of the tax burden on businesses, measures to combat tax evasion and improve tax compliance and collection by the Tax Department will balance the revenue loss.
This new tax reform comes 22 years after the country’s last tax system change and aims for a fairer distribution of the tax burden, strengthening lower-income groups and the middle class, enhancing business development prospects, and maintaining economic resilience and growth.
The battle now moves to Parliament, as the bills will be submitted to the Plenary today, with discussions in the Finance Committee expected to begin around late November.
The bills
“Phileleftheros” presents the key parameters of the six bills, as they have been formulated in recent days and will be submitted to Parliament today.
For individuals, income taxation will be based on family composition and income, with an increased tax-free threshold for everyone. Specifically, the measures include:
- Increasing the tax-free threshold to €20,500 and widening tax brackets
- Income from €20,501 to €30,000 will be taxed at 20%
- Income from €30,001 to €40,000 will be taxed at 25%
- Income from €40,001 to €80,000 will be taxed at 30%
- Income above €80,000 will be taxed at 35%
- Additional tax exemptions based on family composition, covering households with annual gross income up to €80,000, or up to €100,000 for large families
The tax deductions to be granted are:
- €1,000 annual deduction per spouse/partner/single person for each dependent child and student. Single-parent families will receive a €2,000 annual deduction
- €1,500 annual deduction per spouse/partner/single person for interest on performing loans for primary residence purchase or for primary residence rental expenses in the Republic
- €1,000 annual deduction per spouse/partner/single person for capital expenditure on energy upgrades of primary residence and for electric vehicles. This exemption can be carried forward for the next 4 years
For businesses, 14 measures were included in the tax reform:
- Abolition of deemed dividend distribution (17% on 70% of profits) from 1/1/26. Profits from tax years until 2025 will be subject to deemed dividend distribution
- Actual distributed dividends from 1/1/2026 will be taxed at a rate of 5%
- Increase in corporate tax from the current 12.5% to 15%
- Non-Domicile framework for individuals maintained for 17 years. After 17 years, possibility of extension for 5+5 years with a lump sum payment of €250,000 for the five-year period
- Extension of loss carry-forward from 5 to 7 years
- Abolition of the special taxation method for life insurance companies (insurance companies’ request)
- Introduction of a special taxation method (flat 8%) on stock options under an approved scheme
- Introduction of a special taxation method for profits from cryptocurrency transactions (flat 8%)
- Introduction of a special taxation method for ex-gratia payments from employers upon termination of employment: 20% rate with a tax-free amount of €200,000
- Simplification of stamp duty, to be imposed only on real estate transfers, insurance contracts, and financial transactions
- Abolition of the special defence contribution imposed on rental income
- Adjustment of lifetime exemptions on capital gains taxes: The general exemption increases from €17,086 to €20,000. The agricultural land exemption increases from €25,629 to €30,000. The primary residence exemption increases from €85,430 to €100,000
Provisions removed from the bills
“Phileleftheros” reveals the contentious provisions that have been removed or modified from the bills. Specifically, the following provisions have been deleted:
- An individual would be considered a tax resident of the Republic (regardless of the days spent in the Republic per tax year) if they maintain the center of their main business or economic interests in the Republic
- Adjustment of the remuneration of directors and employees of a company
- The taxation as an individual instead of a legal entity of the amount of a company’s remuneration from the provision of director or advisor services to another company to the director or advisor (lifting the corporate veil)
- The condition that for expenses to be deductible from taxable income, they must also be necessary for obtaining the income
- The limitation that would have applied to related persons when claiming the 20% super-deduction for research and development expenditure when combined with the IP regime
- The reference in the Capital Gains Tax legislation that a reduction in the percentage of shares held in companies owning property constitutes a disposal
Amendments
Among the many changes made is the clarification that the sealing (suspension of operation) of businesses with tax arrears will be done after 3 written notifications to the taxpayer, without the issuance of the relevant decree.
It was ultimately determined that income from interest of an individual (natural person), any provident fund, state organisations, local government authorities, and General Government entities is exempt from income tax and is subject only to special defence contribution.
Also, a grace period of 5 years was granted, so from 1/1/2031, profits from redeeming shares or units in open- or closed-ended collective investment schemes will be subject to taxation. A deduction of up to €300,000 per three-year period was granted for expenses related to first-time listing of shares on a recognised Stock Exchange.
The tax-free amount received by an individual as an ex-gratia payment, compensation, or other benefit was increased from €20,000 to €200,000. A provision was added to make expenses paid to an individual (employee or director) as an ex-gratia payment, compensation, or other benefit deductible from taxable income.
At the same time, the limit for entertainment expenses deductible from taxable income was increased from €17,086 to €30,000.
The deduction from taxable income of individuals for insurance premiums was extended beyond life insurance to cover permanent or partial disability.
Insurance premiums against natural disaster risks up to €500 are granted as a deduction from an individual’s taxable income. There were other changes to provisions in the bills.
The battle in Parliament
The Ministry of Finance will need to make a concerted effort to persuade political parties to approve the bills without many changes and to have the tax reform approved in its entirety in December.
Due to the delay in submitting the bills, DISY, DIKO, and EDEK are in favour of approving the reform in two instalments, while the Government insists it should be voted on in its entirety for uniform implementation.
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