Income tax relief widened under reform, with deductions up to €3,000

Taxpayers will be able to claim income tax deductions of up to €3,000 per year under the tax reform that took effect this month, with relief targeting housing costs, green upgrades and electric mobility.

The scheme introduces additional deductions for mortgage interest or rent on a main residence, as well as for energy upgrades and the purchase of an electric vehicle, provided taxpayers meet the income thresholds set out in the legislation.

Eligibility is based on total annual family income. Families without children, or with one or two children, qualify with income of up to €100,000.

The threshold rises to €150,000 for families with three or four children and to €200,000 for families with five or more children. The deductions apply to married couples, civil partners or cohabiting parents with a common child, as well as to single taxpayers.

The largest single deduction, capped at €2,000 per year, αφορά either interest paid on a serviced mortgage loan for the purchase or construction of a main residence in Cyprus, or rent paid for the use of a primary home.

Where the actual amount of interest or rent is lower, the deduction is limited to the amount paid.

According to the tax department’s explanatory guide, a loan is considered serviced even if it has been restructured, provided that all instalments are paid on time up to December 31 of the relevant tax year.

At the same time, a series of conditions apply. The residence must be owned by at least one of the spouses or partners, or by the single taxpayer, while the mortgage loan must also be in the name of one of the eligible persons.

Any state grant or subsidy related to mortgage interest or rent reduces the amount eligible for deduction, while rent payments must be made through bank transfer, card or another recognised electronic payment method.

Alongside housing relief, the reform places particular emphasis on “green” incentives.

Taxpayers can claim up to €1,000 each for capital expenditure related to the energy upgrading of a main residence or for the purchase of an electric vehicle registered in Cyprus.

These deductions cover works aimed at improving the energy efficiency of a primary home, including technical energy systems, renewable energy installations and electricity storage batteries, as well as the acquisition of electric vehicles. As with housing deductions, eligibility depends on income thresholds linked to family status.

Where total eligible expenditure exceeds the annual cap, €2,000 for couples or €1,000 for single taxpayers, the remaining amount may be carried forward and claimed over the following four years, up to €1,000 per year, provided income criteria are met in each tax year.

If the income thresholds are not met in the year of expenditure, however, the deduction cannot be carried forward.

Additional safeguards also apply. Any public subsidy, such as support received through schemes like ‘photovoltaics for all’, reduces the deductible amount.

Finally, the main residence undergoing energy upgrades must be owned by the taxpayer, while total deductions cannot exceed the actual cost incurred for either energy improvements or the purchase of an electric vehicle.