CYPRUS: Cyprus readies sweeping tax reform to fight evasion, ease burdens

Cyprus is preparing a sweeping tax overhaul that will broaden the tax base, toughen enforcement and ease the burden on households and businesses, officials familiar with the draft legislation said.

According to information from Philenews, the measures currently under preparation are expected to combat tax evasion, widen the revenue net and strengthen the Tax Department’s collection capacity.

One of the scenarios under consideration would allow the Tax Department to seal off businesses that repeatedly fail to issue legal receipts or invoices, a measure already enforced in Greece.

There, tax authorities can temporarily close shops or companies if they are caught violating the law on receipts, particularly after repeated offences.

Officials in Nicosia are now studying this approach as part of their push to curb evasion, though no formal decision has been taken yet.

Another idea resurfacing is the criminalisation of non-payment of income tax. Initially proposed by the Troika in 2012 during the bailout negotiations, the measure made it into draft legislation the following year, introducing criminal liability for company directors, but only in cases of proven fraud or failure to hand over tax already collected on behalf of the state.

After backlash from investors and industry groups, the finance ministry withdrew the bill, concerned it could damage Cyprus’ appeal to foreign firms.

More than a decade later, the proposal is back under review, although officials stress any implementation would be carefully targeted and proportionate.

At the same time, the government is considering stiffer financial penalties for tax violations. Currently, both individuals and companies that fail to file a tax return face a fine of just €100, an amount deemed negligible, especially for corporate offenders.

Under the new framework, some fines could be tripled, although the proposals remain under consultation and could still be adjusted.

Alongside these enforcement measures, the broader tax reform package is nearing completion. The legislation will feature up to 50 amendments and is designed to modernise the system, lower the tax burden for households and businesses, and provide targeted incentives.

The draft bills include an increase in the personal tax-free threshold to €20,500, up from €19,500 today, as well as a revision of income brackets that shifts the highest tax rate of 35 per cent to income over €80,000. Further changes will offer tax relief based on family composition, mortgage costs and green home upgrades.

The aim, according to sources, is to strike a balance between revenue collection and growth, strengthening competitiveness while also restoring fairness.

The Economic Research Centre (CypERC) at the University of Cyprus has been central to the bill’s development, working closely with the finance ministry.

Some business associations have already submitted their proposals to the research team, but others have expressed frustration, claiming their input has not been adequately considered.

The government expects the reform bills to be ready by the end of June, after which they will be made public for a three-week consultation.

If all goes according to plan, the new framework will be enacted in time to take effect on the first day of 2026, that is January 1.