When renting-out property situated in Cyprus several tax issues arise which people (landlords) should be aware of. Such tax issues may be distinguished between A. short term renting (e.g., via platforms such as Airbnb, booking.com, etc.), and B. long term renting (i.e., the usual type of renting). 

There is no formal description in our tax law as to what ‘short-term renting’ means. As per current practice and recent Tax Circular (10/2023), short-term renting occurs when the property is rented out through online platforms (e.g., Airbnb, booking.com, etc.), on a short-term basis, and to different tenants. Who pays the utility bills (electricity, water, internet, etc.) also plays an important role - if landlord pays it’s a strong indication of short-term renting.

Short-term renting of Cyprus property is considered as ‘carrying out a business’ in Cyprus and the relevant income earned is taxable under Income Tax (IT).

Taxable rental income (profit) refers to the gross income received from the short-term renting after deducting any allowable expenses, i.e. expenses closely related to the acquisition, maintenance and renting out of the property. 

Such expenses include maintenance costs for the property, fees paid to persons responsible for the management of the property, utility bills, interest expense on loan for the acquisition of the property, etc.  

The ‘tax-free bracket’ is currently set at EUR 19.500, meaning that taxable rental income up to EUR 19.500 is exempt from IT. Anything over and above EUR 19.500 is progressively taxed between 20% to 35%. Property owners (regardless of their tax-residency Country) with taxable income above EUR 19.500 are therefore required to submit a Cyprus tax form once a year to declare such income and pay IT in Cyprus.

Short-term renting is subject to Gesy, with the current rate at 2.65% of the taxable rental income (capped at EUR 180.000), payable by the property owner every six months (30 June and 31 December) via tax portal.

This applies to both Cyprus and non-Cyprus tax resident property owners.

Short-term renting property owners in Cyprus have an obligation for VAT registration if their turnover (i.e. gross income) from renting exceeds EUR 15,600. VAT registration implies obligation to charge the tenants 9% VAT (i.e. reduced VAT rate) on the rent amount agreed.

There is an option to voluntarily register for VAT (i.e. even if gross revenue does not exceed the EUR15.600 threshold). This is typically done when a taxpayer wants to claim back VAT on expenses incurred (such as renovation costs). 

VAT returns are submitted every three months with the submission deadline being 40 days from the last day of each VAT period.

Again, there is no formal description in our tax law as to what ‘long-term renting’ means. In our view, long-term renting occurs when Cyprus property is rented out on a long-term basis, the property owner signs a long-term (i.e. 12 months or more) agreement (contract) with the tenant, utilities are paid by the tenant (not the landlord), there is no online platform involved in the process, etc.

Taxable rental income for income tax purposes is calculated as gross rental income received, reduced by:

• a fixed percentage of 20% on gross rental income received (irrespective of the amount of actual expenses incurred)

• wear and tear allowances over an estimated useful life of the building of 33 year (cost of land should be excluded in the calculation)

• interest expense on loan taken out to finance the acquisition of the property (if applicable)

Income tax brackets are the same as A.1 above and same obligations exist.

Same as A.1 above.

Cyprus tax resident and domiciled individuals renting out a property in Cyprus on a long-term basis have an obligation to pay Special Defense Contribution (SDC) at the effective rate of 2.25% (i.e. 3% on 70% of the income) of gross rental income earned.

This should be paid by the property owner every six months (30th  June and 31st December), assuming that the tenant is an individual (not a company), via the tax portal.

‘Non-domiciled’ persons are exempt from SDC. Individuals who are ‘non-domicled’ in Cyprus should apply for a ‘non-dom’ certificate to confirm the exemption. More information about Cyprus’ non-dom regime here.

Disclaimer: The above information should only be used as a guide, and we shall not be held responsible for any mistakes or problems that arise with the use of this information. We strongly suggest obtaining proper tax advice from experienced tax consultants.