In Cyprus the real estate is booming. We observe a growing number of investments– especially in properties destined for rentals. When owning a rental property, it is crucial to know and understand the tax implications of rental income.
The short-term rental market also experiences a significant increase. The Cyprus Tax Department recently clarified that the revenue from such properties, specifically – rentals through online platforms (i.e. AirBnB, Booking) can be seen as coming from a business operation (and subject to income tax).
Further in the article we are also describing general tax treatment of rental income in Cyprus.
Rental income from online platforms (e.g. Airbnb, Booking etc) – taxation of the owners
On 13 September 2023, the Cyprus Tax Department issued a Circular (10/2023) providing clarifications on the tax implications for income generated from accommodation rentals through online platforms (i.e. AirBnB, Booking) and other means. Such rental income will be treated, subject to certain conditions, as business income (therefore, subject to Income Tax and exempt from Special Defence Contribution).
In particular, the Cyprus Tax Department clarified that in cases where owners satisfy all the following conditions, the income will be taxable under Article 5(1)(a) or 5(2)(a) of the Income Tax Law as amended and not under Article 3(2)(d) of the Special Defense Contribution Law as amended:
a. Τhe property from which the income arises is registered or has been obliged to be registered in the Register of Self-catering Accommodation kept at the Deputy Ministry of Tourism; and
b. The owner of the property is registered with the VAT registry (or had to be registered for VAT purposes) and imposes VAT at the rate of 9% on the income from the property; and
c. The rental of the property is short-term, repeated and usually to different persons each time.
Cyprus Tax Department has presented the three scenarios in which the income generated is classified as business income.
- When the property owner directly manages the property for rental
- Income tax: The taxable income equals the gross receipts, minus expenses incurred exclusively for the acquisition of the of the said gross receipts (including capital allowances and interest expense);
- Special Defense Contribution (SDC): not subject to SDC;
- General Health System (GHS): Owners who are individuals are subject to GHS contributions, paid by them via self-assessment every six months.
- When the property owner delegates the management of the property to a property manager.
- Same as above;
- And the fee of the manager is deductible as an expense; there is no obligation on the manager to withhold GHS contributions.
- When the owner (individual or legal entity) rents out the immovable property to a short-term or long-term tenant for a fixed rental amount, granting the tenant the exclusive exploitation rights on the immovable property and e.g. the tenant sub-leases it as described above (as a manager responsible for any expenses related to the property).
- Income tax: Normal taxation as rental income, not as business income;
- SDC: Normal taxation as rental income, not as business income;
- GHS: Owners who are individuals are subject to GHS contributions, paid by them via self-assessment every six months.
How is rental income taxed in Cyprus?
Below direct tax obligations when renting out property in Cyprus
Income Tax (personal income tax, or corporate tax, accordingly)
In the case of individuals, rental income is pooled along with other taxable income sources and taxed at the progressive personal income tax rates ranging from nil to 35%, after allowing for relevant tax deductions. A few tax deductions maybe available to reduce the amount of rent subject to income tax.
Note: Cypriot income tax obligations for a Cypriot individual in receipt of foreign rental income. CY tax resident with foreign rental income are subject to income tax in Cyprus. A double tax credit is available subject to the conditions.
SDC (Special Defense Contribution)
SDC is applicable on the gross rent amount (no deductions available) at the effective tax rate of 2,25% (=75% x 3%). SDC is only payable by Cyprus tax residents that are also Cyprus domiciled. Cyprus tax residents that are non-Cyprus domiciled are exempt from SDC.
Where the tenant is a Cyprus company, SDC is withheld at source and is payable on 30 June and on 31 December each year. Where the tenant is an individual, SDC is paid by the landlord on 30 June and on 31 December each year.
GESY/ GENERAL HEALTHCARE SYSTEM (GHS)
GHS is applicable on the gross rent amount (no deductions available) at the rate of 2,65%. GHS contributions are subject to an annual cap (at annual income of 180000 EUR) and are payable by all Cyprus tax residents, irrespective of domicile status.
Non-Cyprus tax residents are subject to GHS contributions only in case they receive rental income from properties situated in Cyprus.
Stamp Duty
In general, rental agreements are subject to stamp duty (capped), calculated using the progressive SD rates ranging from 0%-0,2%.
VAT
The renting and/or leasing of immovable property to a taxable person for the purpose of carrying on taxable activities, except for the leasing of a building used for residential purposes, is subject to VAT at the standard rate (currently at 19%). The benefit of earning rental income which is subject to VAT is that it allows the owner to claim VAT incurred on the acquisition/construction of the immovable property or expenses incurred for its refurbishment.
Currently in Cyprus the registration for VAT is required in case of supply of services to the value of €15,600 in any continuous period of twelvemonths, or if the services supply is expected to be of €15,600 in a 30-day period. In case of individuals who are not residents of Cyprus, but their property is in Cyprus, they should also register for VAT if above threshold is exceeded.
IBCCS TAX – we are at your disposal
Please do not hesitate to contact us if you need additional information about taxation on rental income.
For further enquiries, please contact us by email on [email protected] or call our office in Cyprus on +357 222 58 777.
