2026 Employee income tax

The tax reform starts to apply from tax year 2026, for which the tax return will be filed during 2027 (deadline: 31 July 2027).

Note that during 2026 the tax return for tax year 2025 will still be filed under the old rules.

The tax-free amount (taxable income taxed at 0%) is increased from €19,500 to €22,000 from tax year 2026 onward.

For tax year 2025, individuals with gross income above €19,500 must file.

From tax year 2026, an individual who:

(a) has gross income (before any exemptions or deductions) falling under Article 5 of the Income Tax Law, or

(b) is a Cyprus tax resident who has completed the 25th but not the 71st year of age by 31 December of the tax year, regardless of income,

must file a tax return. The Council of Ministers may exempt categories of persons by decree.

A person with no gross income and who by 31 December of the tax year (a) has not completed the 25th year, or (b) has completed the 71st year, is not required to file a tax return.

The reform introduces significant new personal deductions aimed at Cyprus tax-resident individuals, based on family status and income criteria, for:

• Dependent children
• Rent or interest on a serviced housing loan for the main residence
• Energy upgrade of the main residence and purchase of electric vehicles

These new personal deductions do not reduce the taxable income used to calculate the 1/5 cap on insurance premiums, GHS contributions and fund contributions — they are granted on top.

They are declared on form T.F.59 for calculation of tax withheld by the employer.

• Spouses / civil partners / cohabiting partners with common children must consent to the exchange of their tax information so that the family income can be verified against the criteria. Consent is given in a dedicated field in each partner's tax return.
• The tax returns of the spouses / partners / single person must be filed within the prescribed deadlines.

(A) Families. Total gross family income must not exceed:

• €100,000 for families with no children or with one or two children
• €150,000 for families with three or four children
• €200,000 for families with five or more children

Gross family income includes income from all family members: employment, pensions, rent, interest, dividends, alimony, Cyprus Agricultural Payments Agency grants, public assistance and any other allowances/grants in Cyprus or abroad.

Excluded: income of full-time students/pupils from work, child benefit, student grant, welfare benefits and scholarships, plus allowances/grants to disabled or chronically ill persons.

Single-parent family: same criteria apply. A single-parent family is one where the parent lives with at least one dependent child under the same roof, has custody, and does not have a spouse/civil partner or cohabiting partner with common children.

(B) Single persons (living without dependent children, spouse or civil partner): gross income must not exceed €40,000.

The deduction is granted to each biological or adoptive parent as follows:

• €1,000 for the first dependent child
• €1,250 for the second dependent child
• €1,500 for the third and each additional dependent child

A dependent child (on 31 December of the tax year) is a biological or legally adopted child who is:

• under 18 years old
• a secondary-school pupil under 20
• a National Guard conscript under 21
• a student under 24
• permanently unable to support themselves, regardless of age

(A) Single-parent families. Same income criteria based on the number of children apply and the deduction is doubled for each dependent child.

Example: a single parent with three dependent children, if total gross income does not exceed €150,000, is entitled to €7,500 (€2,000 + €2,500 + €3,000).

(B) Parent with shared custody whose child lives with the other parent is entitled to the deduction based on the income criterion that applies to their own situation (€40,000 if single, or the family income criterion according to the number of children, if part of a family).

Based on the income criteria, a deduction of up to €2,000 per spouse/partner/single person is granted for:

• Interest on a serviced housing loan for the purchase or construction of a main residence in Cyprus (including restructured loans paid on schedule).
• Rent paid for the use of a main residence in Cyprus.

Further conditions:

• The residence / loan must be in the name of at least one beneficiary.
• The deduction cannot exceed the actual expense.
• Government grants reduce the deductible amount.
• Rent must be paid by bank transfer, card or recognised electronic payment method.

A deduction of up to €1,000 per spouse/partner/single person is granted for capital expenditure on:

• improving energy efficiency of the main residence in Cyprus,
• energy-efficiency technical systems, renewables and battery storage,
• electric vehicles registered with the Department of Road Transport.

If expenditure exceeds the annual cap, the balance can be carried forward for up to four more years, provided the income criteria are met each year. If in the year of expenditure the criteria are not met, the deduction is lost — it cannot be carried forward.

A new electric vehicle is one delivered within 6 months from first registration OR with up to 6,000 km driven (whichever comes first).

A deduction without income criteria for owners of any home in Cyprus, on premiums paid from 1.1.2026 to insure the property against natural disasters (fire, earthquake, flood, etc.), up to a total of €500 across all homes per tax year.

This deduction reduces the net income used to calculate the 1/5 cap.

In addition to the deduction for life insurance premiums, a deduction is granted for premiums paid from 1.1.2026 for policies covering permanent and/or temporary, total and/or partial disability. The deduction is capped at 7% of the insured amount.

Where a single policy covers both life and disability, the 7% cap applies to the combined sum insured. This deduction is included within the 1/5 cap on insurance and fund contributions.

(a) If less than 4 years have passed since the policy start, 50% of the partial surrender amount is added to taxable income in the year of surrender.

(b) If 4 years or more have passed, 50% of the amount by which the surrender exceeds the gross surrender value on 31 December of the fourth year preceding the surrender is taxed.

Example: Policy issued in 2023, partial surrender of €10,000 in 2026 → taxable amount €5,000 (50% × €10,000).

No change to the existing rules:

• Within 3 years of the policy start → 30% of premiums for which a deduction was granted is taxed.
• Within the 4th–6th year → 20% of such premiums is taxed.
• After 6 years → no taxation.

The capital paid on redemption is not taxed.

From 1.1.2026 the Special Defence Contribution on rental income is abolished. Rental income continues to be subject to income tax and GHS.

Individuals must pay:

• Provisional income tax in two instalments, on 31/7 and 31/12 of each tax year.
• Self-assessed GHS (if not withheld by a corporate tenant), on 31/7 and 31/12 of each tax year.