Tax Exemptions, Deductible and Non Deductible Expenses for Individuals

Navigating the tax landscape can be complex, but understanding the available exemptions and deductions can lead to substantial savings. The information provided here details the tax exemptions and deductible expenses in Cyprus for individuals, helping you identify potential benefits for your personal finances.

Quick Navigation

→ Tax Exemptions — Income types not subject to tax (incl. new crypto & stock option regimes)
→ Deductible Expenses — Costs that reduce taxable income
→ New Deductions from 2026 — Child, housing, green energy benefits
→ Non-Deductible Expenses — Costs that cannot reduce income
→ Electronic Rent Payments — Requirement from 1 July 2026

Tax Exemptions

In Cyprus, specific types of income are exempt from income tax, offering considerable benefits for eligible individuals. The following income categories are fully exempt:

Dividend Income: Exempt from income tax in full, may be subject to Special Contribution for Defence (SDC rate reduced from 17% to 5% from 2026; transitional 17% rate applies to dividends from pre-2026 profits if received by 31/12/2031). ✦ Changed from 2026
Interest Income: ✦ Codified from 2026 Exempt from income tax in full (previously administrative practice, now explicitly codified in the ITL from 2026). Interest income received by individuals is subject to Special Contribution for Defence at 17% on the gross amount (or 3% for interest on certain Cyprus/EU government/local authority securities and certain listed securities). This treatment applies to all interest income received by individuals, regardless of whether it is passive investment income or interest earned in the course of business.
Remuneration for Work Rendered Outside the Republic: Exemption applies to the entire amount for services rendered to a non-resident employer or a permanent establishment outside the Republic for more than 90 days in a tax year.
Foreign Exchange (FX) Gains: The whole amount is exempt, excluding FX gains arising from trading in foreign currencies and related derivatives.
Gains from the Disposal of Securities: The entire amount is exempt. The term “Securities” refers to shares, bonds, debentures, founders’ shares, and other instruments issued by companies or legal entities, whether incorporated in Cyprus or abroad, as well as any options on these instruments.
Gains from Qualifying Loan Restructuring: The exemption may cover the entire amount, subject to conditions that the loan must have been non-performing before or on 31 December 2015.
Profits from Permanent Establishment Outside the Republic: The entire amount is exempt if specific conditions are met.
Rent from Preserved Buildings: The entire amount is exempt, subject to certain conditions.
Pensions and Death-Related Payments: Regular pensions from provident funds, social insurance, and similar sources are fully exempt. Lump sum payments for death gratuity or compensation for death or bodily injury are fully exempt.
Ex-Gratia Retirement/Termination Payments: ✦ Changed from 2026 Payments upon retirement (including early retirement), termination of employment, or compensation for termination of employment receive partial exemption. The first €200,000 is exempt from income tax; amounts exceeding €200,000 are taxed at a fixed rate of 20%.
Lump Sum Repayment from Life Insurance or Provident Funds: ✦ Updated from 2026 The entire amount is exempt. Note: The 2026 reform amended provisions on the deductibility of contributions to provident funds and life insurance contracts and the tax treatment of insurance policy redemptions. Income derived from contributions to approved provident funds (Cyprus/EU) or approved insurance contracts providing pension payments is confirmed as exempt. Tax deductions for insurance premiums now extend to permanent and partial incapacity insurance (see below).
Capital Gains from the Disposal of Intellectual Property Rights: The entire amount is exempt.
Gains from Disposal of Crypto-Assets: ✦ New from 2026 Taxed at a flat rate of 8% (Art. 20E ITL). “Disposal” includes sale, gift/donation, exchange (crypto-to-crypto), and use as payment. Crypto-assets defined per MiCA (EU Regulation 2023/1114). Losses are ring-fenced: can only offset crypto gains in the same tax year — no carry-forward and no group relief. Does not apply to crypto acquired through mining (taxed under normal rules).
Stock Options under Approved Employer Schemes: ✦ New from 2026 Benefits from approved share-based schemes taxed at a flat rate of 8%. Maximum taxable benefit: €1,000,000 over a 10-year period. Schemes must have a minimum 3-year vesting period, be non-transferable, and relate to shares carrying the same rights as ordinary shares (except voting). Does not apply to related parties (Art. 33 ITL). Existing schemes must apply for Tax Department approval by 30 June 2026.

Special Exemptions: Remuneration from Employment in the Republic

Cyprus offers two significant exemptions for individuals taking up employment for the first time in Cyprus, subject to non-residence conditions:

50% Exemption for “First Employment”

Applies to first employment in Cyprus commencing from 1 January 2022
Annual remuneration must exceed €55,000
Individual must not have been a Cyprus tax resident for 15 consecutive years prior (or 10 years for employments starting 1 Jan 2022 – 29 June 2023)
Available once in a lifetime for a period of 17 years
Specific conditions apply for employments commencing prior to 1 January 2022

20% Exemption for First Employments with Shorter Non-Residence

Applies to first employment in Cyprus commencing between 26 July 2022 and 31 December 2027
Maximum annual exemption: €8,550
Individual must have been employed outside Cyprus by a non-resident employer for 3 consecutive years prior to commencing first employment in Cyprus
Available for 7 years from the year following commencement, or until termination of first employment, whichever occurs earlier
Not available if you have already claimed the 50% exemption

Deductible Expenses

Certain expenses incurred wholly and exclusively for the production of income are deductible from the taxable income of an individual. The following categories are recognized:

Business & Property-Related Deductions

Interest on Asset Acquisition for Business Use: The entire amount is deductible.
Expenses for Letting of Buildings: 20% of the gross rental income is deductible. Note from 2026 Rental income is no longer subject to Special Contribution for Defence (only income tax applies from 2026, removing the previous dual taxation).
Interest for Building Acquisition for Rental Purposes: The entire amount is deductible.
Maintenance of Buildings Under Preservation Order: The deduction amount depends on the size of the building.

Contributions & Donations

Subscriptions to Trade Unions or Professional Bodies: The entire amount is deductible.
Donations to Approved Charitable Organisations: The entire amount is deductible.
Donations to Approved Cultural Institutions: New Deductible up to €50,000 per tax year. Cultural institutions include public law entities and non-profit organisations with a statutory purpose of cultural research, study, or production. Approved by the Deputy Minister of Culture. Any losses up to the amount of the donation cannot be carried forward.
Political Party Donations: Deductible up to €50,000, subject to certain conditions.
Listing Expenses: New Expenditures for the first listing of shares on a recognised stock exchange are deductible up to €300,000. Deduction cannot create a loss; any undeducted portion may be carried forward for up to 2 years. Subject to EU de minimis rules (Regulation 2023/2831).

Investment & Research

Expenditure for Scientific Research and Development: The entire amount is deductible, including an additional tax deduction of 20% of the relevant expenses for research and development incurred during the years 2025-2030.
Investment in Innovative Small/Medium-Sized Businesses: Deductible up to 50% of taxable income, capped at €150,000, subject to conditions. This includes investments made directly, through an investment fund, or an alternative trading platform. This is applicable from 1 January 2017 up to 31 December 2026.
Expenditure on Film Infrastructure and Technological Equipment: Deductible up to 20%, subject to conditions.

Mandatory Contributions & Insurance

Fund Contributions: Contributions to social insurance, the General Healthcare System, approved provident and pension funds (up to 10% of remuneration), medical or other approved funds (up to 2% of remuneration), and life insurance premiums related to the claimant’s life (up to 7% of the insured amount) are deductible up to 1/5 of the net taxable income before these deductions.

New Deductions from 2026

✦ New from 2026

The 2026 tax reform introduced significant new deductions to support families and promote green transition initiatives. These deductions are CUMULATIVE—they apply in addition to all existing deductions. The income limit test applies to EACH new deduction category independently, meaning higher-rate taxpayers benefit proportionally more from each deduction.

Deduction	Maximum Amount	Income Limits & Notes
Child (1st child) New	€1,000	Income limits: 0-2 children: €100k \| 3-4 children: €150k \| 5+ children: €200k. Per parent; family gross income basis. Single parents receive double deduction (€2,000).
Child (2nd child) New	€1,250	Per parent; family gross income basis. Single parents receive double deduction (€2,500).
Child (3rd+) New	€1,500	Per parent; family gross income basis. Single parents receive double deduction (€3,000).
Student Deduction New	TBD	Same income limits as child deductions. Full-time study; conditions pending regulation.
Housing (mortgage interest or rent) New	€2,000	Same income limits as child deductions. Primary residence; electronic rent payment mandatory from 1 July 2026 for rental expenses.
Energy Efficiency New	€1,000	Same income limits as child deductions. Capital expenses on primary residence (solar panels, insulation, HVAC upgrades, battery storage systems, etc.). Can be spread over 5 years if expense exceeds €5,000.
Electric Vehicle Purchase New	€1,000	Same income limits as child deductions. New M1 category electric vehicles and charging stations. Can be spread over 5 years if expense exceeds €5,000.
Residence Insurance (Natural Disasters) New	€500	No income limit. Insurance premiums against natural disasters (fire, earthquake, flood) on any residence (primary, holiday home, or rental property).
COLA (Cost-of-Living Adjustment) New	200% of COLA	No income limit. Deduction is 200% of Cost-of-Living Adjustment payments received from employers.

Worked Example: A married couple with 3 children (ages 5, 8, 14) and family gross income of €80,000. Father claims: child deduction €1,000 + €1,250 + €1,500 = €3,750, housing deduction €2,000 (mortgage interest), energy efficiency €1,000 (solar panels). Total new deductions for father: €6,750. At a 30% marginal rate, this yields approximately €2,025 in annual tax savings. Mother may also claim child deductions separately, potentially doubling the family benefit.

Important: The new 2026 deductions are CUMULATIVE — they apply in addition to all existing deductions (social insurance contributions, provident fund contributions, charitable donations, research expenses, etc.). The income limit test applies to EACH new deduction category independently. All new deductions reduce taxable income before the progressive tax bands are applied, meaning higher-rate taxpayers benefit proportionally more from each deduction. If income limits are not met in a tax year, unused deductions cannot be carried forward to future years.

Permanent or Partial Incapacity Insurance: ✦ New from 2026 A new deduction for insurance premiums against permanent or partial incapacity has been introduced. The deduction is available for premiums paid on insurance policies covering the individual against permanent incapacity or partial incapacity arising from accident or illness. This deduction is subject to the existing 1/5 limitation together with other insurance and fund contributions (social insurance, provident funds, life insurance, etc.). The 7% of insured amount limitation applies separately to life insurance and incapacity insurance, or combined if a single policy covers both.

Non-Deductible Expenditures

In calculating an individual’s taxable income, not all incurred expenses can reduce the taxable base. The following are non-deductible:

Personal Expenses: Any costs not incurred entirely for generating taxable income are non-deductible. Expenses must be fully and solely for the purpose of producing income to be considered deductible.
Lack of Documentation: Expenditures lacking proper receipts or supporting documents are non-deductible.
Business Entertainment: Expenses exceeding the lesser of 1% of gross income or €30,000 are non-deductible.
Private Vehicle Expenses: All expenses relating to private motor vehicles are non-deductible, regardless of their business use.
Interest Payments: Interest related to the acquisition of a private motor vehicle or other non-business asset is non-deductible. This limitation lifts after seven years from the asset’s acquisition date.
Employee Remuneration: Wages and salaries are non-deductible for services rendered within the tax year if related social insurance and other contributions are unpaid by their due dates. If contributions are settled within two years post-due date, the remuneration becomes deductible in the year of payment.

📋 Previous Provisions

Until 2025, the entertainment expense ceiling was €17,086. The 2026 reform increased this limit to €30,000 (still subject to the 1% of gross income benchmark, whichever is lower), providing greater flexibility for business entertainment expenses while maintaining appropriate controls.

Electronic Rent Payment Requirement

✦ New from 1 July 2026

Effective from 1 July 2026, rent payments that do not meet electronic payment requirements will not be considered tax deductible. Electronic payment means bank transfer, card payment, or any other recognized electronic payment method. Cash payments and payments by check will not qualify for the rental expense deduction. This requirement applies to both individuals claiming deductions under the new housing deduction rules and to those deducting rental expenses in the ordinary course of business.

Depreciation Allowances

Business owners are entitled to reduce their taxable income by claiming depreciation allowances for the assets employed in their business operations.

Tax Credit for International Taxation

Foreign tax paid on income that is also subject to income tax in Cyprus may be credited against the income tax due in Cyprus, with or without the existence of a tax treaty.

Disclaimer

Please note that the information provided here is for general guidance only and does not constitute professional tax advice. Tax laws and interpretations are subject to change, and individual circumstances can significantly affect tax obligations and benefits.

Contact Us

For personalized tax advice tailored to your specific situation, we strongly recommend consulting with a qualified tax professional. Our team is equipped with the expertise to navigate the intricacies of Cyprus tax law and provide you with customized solutions. Contact us to ensure that you are making the most informed decisions for your tax-related matters.