What individuals need to know about the 2026 tax reform
The Cyprus tax reform, effective from the 2026 tax year, introduces important changes to personal income taxation. One of the key compliance tools under the new framework is Form IR59, which plays a central role in claiming personal tax deductions and ensuring correct tax withholding through employment.
For employees, employers, and self-employed individuals, understanding how IR59 works is essential to accurate tax treatment and to avoid compliance issues.
What is IR59, and why does it matter
IR59 is the official declaration submitted by individuals to claim personal tax deductions that influence the calculation of income tax withheld by the employer.
Under the updated system, IR59 enables taxpayers to declare new eligible deductions in advance, ensuring that withholding tax reflects their actual tax position throughout the year.
The form primarily applies to Individuals with employment income in Cyprus claiming personal deductions under the 2026 tax reform.
Key personal income tax changes from 2026
The tax reform introduces adjustments that directly affect how IR59 is used.
Increased tax-free threshold
The tax-free income threshold increases to €22,000 from the 2026 tax year
Personal Income Tax Rates (from 2026)
| Annual Taxable Income (€) | Tax Rate |
|---|---|
| 0 – 22,000 | 0% |
| 22,001 – 32,000 | 20% |
| 32,001 – 42,000 | 25% |
| 42,001 – 72,000 | 30% |
| Over 72,000 | 35% |
Tax is calculated progressively. Only the income within each band is taxed at the appropriate rate.This adjustment enhances the tax-free threshold and directly impacts IR59 withholding calculations.
New personal tax deductions declared through IR59
IR59 is used to declare certain personal deductions, which are granted based on income and family criteria.
Eligible deductions include:
- Dependent children
- Rent or interest on a primary residence
- Energy efficiency upgrades to a primary residence
- Purchase of an electric vehicle
- Insurance of property against natural disasters
These deductions do not reduce taxable income directly. Instead, they reduce the final tax payable and are applied through adjusted withholding.
Income and family criteria
Eligibility for deductions depends on gross income and family status.
Indicative income limits
- Single individuals: up to €40,000
- Families with up to two children: up to €100,000
- Families with three or four children: up to €150,000
- Families with five or more children: up to €200,000
Family income is assessed on a combined basis where applicable. Certain income of dependent children, such as student employment income, is excluded from the calculation.
How IR59 works in practice
IR59 is submitted to the employer, who then adjusts PAYE withholding accordingly.
Key points to note:
- Only the final deduction amount is declared, not the detailed calculations
- Late or incorrect submissions can result in incorrect withholding and later adjustments
- Even if IR59 is not submitted, the individual remains obliged to file a personal income tax return where required.
Who must file a personal tax return?
From 2026 onwards, a personal tax return is required if the individual:
- Has gross income falling under taxable categories, or
- Is a Cyprus tax resident aged 25 to 71, regardless of income level
IR59 does not replace the annual tax return. It supports correct withholding during the year.
Common issues we address in payroll and personal tax compliance
In practice, we assist entities and individuals with structured compliance matters, including:
- Incorrect family classification affecting payroll withholding
- Misapplication of income thresholds
- Lack of coordination between payroll and personal income reporting
- Failure to align payroll data with annual tax return obligations
- Errors in calculating withholding under the IR59 framework
Early professional review helps ensure proper payroll management and accurate annual reporting.
Need support with payroll management or personal income tax compliance?
Proper administration of IR59 ensures accurate withholding throughout the year and minimises the risk of year-end adjustments.
Our team offers:
- Payroll structuring and compliance oversight
- Preparation and submission of annual personal income tax returns
- Coordination between payroll data and tax filings
- Personal tax planning under the new Cyprus tax framework
Michael Chambers & Co. LLC provides structured tax support for businesses and individuals seeking compliant, efficiently managed payroll and reporting processes.
