Cyprus’ shadow economy estimated at a quarter of GDP — authorities prepare reform

Recent studies show that the size of Cyprus’ shadow (or “black”) economy amounts to around 25%–34% of GDP. Depending on the methodology — whether electricity consumption or an averaged approach — the estimates vary, but remain high.

In response, the state is planning a large-scale tax reform, which will come into effect in 2026. Key changes include:

• raising corporate tax from 12.5% to 15%;
• abolishing the Deemed Dividend Distribution scheme;
• reducing the Special Defence Contribution (SDC) on dividends for residents from 17% to 5%;
• strengthening economic substance requirements and introducing new tax incentives for green and digital investments.

Experts believe these measures could help reduce the shadow economy, increase transparency and restore trust in the tax system.