On 16 September 2026, the Council of Ministers of the Republic of Cyprus formally approved the 2027 State Budget and the accompanying 2027-2029 Medium-Term Fiscal Framework (MTFF), setting the government’s financial trajectory for the next three years. The budget, presented by Finance Minister Makis Keravnos, projects a general government surplus of 0.8% of GDP for 2027, with gross public debt declining to below 70% of GDP, meeting the Maastricht criteria ahead of schedule. On the revenue side, the budget incorporates several tax policy adjustments: the permanent reduction of the corporate income tax rate for innovative SMEs from 12.5% to 10% under the revised IP box regime aligned with OECD BEPS Action 5; an increase in the green tax on plastic packaging to €0.15 per kilogram to fund circular economy initiatives; and the introduction of a digital services tax (DST) at 3% on revenues derived from targeted advertising and intermediary services, consistent with the OECD Pillar One Amount A timeline. Expenditure priorities include a 6% increase in health spending, enhanced allocations for digital transformation of tax administration (TAXIS 2.0), and continued support for energy transition subsidies. The MTFF embeds a structural primary surplus target of 1.5% of GDP, ensuring fiscal sustainability while creating space for strategic investments.
Key Takeaways
- Targeted Corporate Tax Incentives: The budget enshrines a preferential 10% CIT rate for qualifying innovative SMEs, reinforcing Cyprus’s attractiveness as an IP and R&D hub while adhering to OECD nexus requirements.
- Green and Digital Taxation Expansion: New environmental levies on plastic packaging and a digital services tax signal a shift toward consumption-based and digital economy taxation, broadening the tax base and aligning with EU Green Deal and OECD Two-Pillar objectives.
- Debt Trajectory and Fiscal Credibility: The projected debt-to-GDP ratio falling below 70% enhances Cyprus’s creditworthiness, potentially lowering borrowing costs and providing fiscal buffers against external shocks.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement