The decision to invest in property in Cyprus can have a significant impact on your financial portfolio, your tax position and your long-term wealth strategy. One of the key decisions to make early on is whether to buy the property in your personal name or through a Cyprus company. Each approach has its own set of tax, financial and legal considerations. This article provides a thorough comparison of the two ownership structures, focusing on taxation, deductions, liability, estate planning, administrative costs and other key factors. By the end, you will have a detailed understanding of which option may best fit your own real estate investment strategy.

Taxation on Rental Income

Personal Ownership:

• Income Tax: Individuals who own property in their own name and receive rental income are subject to the personal income tax. The income tax rates in Cyprus range from 0% to 35%, depending on the total annual income of the individual:

• Special Defence Contribution (SDC): the SDC applies to individuals who are tax residents and domiciled in Cyprus. The SDC is 3% on 75% of gross rental income. Individuals who are not tax residents of Cyprus or who have acquired non-dom status are not required to pay SDC.
• General Health System Contribution (GESY): Individuals who earn rental income are required to contribute 2.65% of their gross rental income, with a maximum contribution amount per year of €4770. Regardless of domicile, this is applicable to tax residents of both Cyprus and non-Cyprus.

Corporate Ownership:

• Corporate Tax: A Cypriot company’s rental income is subject to a flat corporation tax rate of 12.5%, which is far less than the highest personal income tax band of 35%.
• Special Defence Contribution: Cypriot companies are generally subject to a 3% VAT on 75% of gross rental income. However, if rental income is derived from self-catering accommodation rented through online platforms, under certain conditions, it is classified as business income. This income will only be taxed at the 12.5% corporate tax rate, exempting it from SDC, thereby reducing the tax burden for companies in the hospitality sector.
• General Health System Contribution (GESY): Cypriot Companies are not required to pay a contribution to the GESY on the income they receive from rentals, which is another clear advantage over personal ownership, where individuals must make GHS contributions.

To find out more about the taxation of income from rental property in Cyprus, see our article on Taxation of Rental Income in Cyprus.

Capital Gains Tax (CGT)

Personal Ownership:

• When an individual sells property in Cyprus, the sale is subject to CGT at a rate of 20%. CGT applies to the gain (profit) arising from the sale of the property. However, there is an exemption for the sale of a principal residence if certain conditions are met, including a cap on the amount of the exemption.

Business Ownership:

• Companies are subject to CGT on the disposal of a property located in Cyprus. In addition, CGT applies to the sale of shares of private companies whose assets include property in Cyprus, or to shares of companies that either directly or indirectly participate in companies holding such property, where at least 50% of the market value of the shares is derived from this property.
• Unlike personal ownership, companies do not benefit from the same exemptions, such as those for the sale of a principal residence. However, there is no CGT on the sale of shares in listed companies on a recognized stock exchange.

For more information on Capital Gains Tax in Cyprus, check out our detailed article Navigating Capital Gains Tax in Cyprus.

Deductions and Expenses – Optimizing Tax Liability

Personal Ownership:

• The deductions available for individuals holding property in their own name are limited. You may deduct:
  • Property repairs and maintenance costs, which are essential for the upkeep of the property.
  • Interest on loans used to acquire the property, but only up to a certain extent.
  • Property insurance premiums and property management costs, if applicable.

These deductions are helpful but limited in scope, particularly for large-scale or commercial property investments.

Corporate Ownership:

• Companies, being a separate legal entity, have a comparatively wide range of deductible expenses, such as:
  • Full interest deduction on loans used to acquire or improve the property. This is a substantial benefit, particularly for investors who use leverage (borrowed funds) to finance property purchases.
  • Property maintenance, repairs, and improvement costs are fully deductible, allowing for a more significant reduction in net profits.
  • Depreciation of property: A Cypriot company can depreciate the value of its real estate over time, providing further tax relief.
  • Professional fees: Companies can deduct legal fees, accounting fees, and management fees related to the property.
  • Insurance premiums and utilities: These costs are also deductible, which helps further optimize the tax burden for corporate property owners.

Thus one can clearly understand why incorporating a property is beneficial especially if the incorporation is for the purpose of real estate investment. The basic reason is that the revenue that would otherwise be taxed can be maximally utilized as income after taxation.

Liability Protection

Personal Ownership:

• When you own property in your personal name, you have full personal responsibility for any claims, debts or liabilities associated with the property. This means that if a tenant files a lawsuit or if there is a legal dispute over the property, your personal assets could be at risk.

Corporate Ownership:

• Owning property through a Cyprus company offers strong protection. The company operates as a separate legal entity, which means that any claims, debts or liabilities are limited to the assets of the company. As a shareholder, your personal liability is limited solely to the amount of your share capital, ensuring that your personal assets remain protected.

Administrative Costs

Personal Ownership:

• Owning property in a personal name involves relatively minimal administrative costs. You are only required to manage your personal tax filings, including rental income declarations and CGT filings when applicable. This simplicity makes it appealing for individuals who are managing one or two properties for personal or family use.

Corporate Ownership:

• Corporate ownership involves more administrative duties, including:
  • Annual audits: Cypriot companies are required to submit audited financial statements annually.
  • Corporate filings: Companies must file annual returns and maintain accurate accounting records.
  • Tax filings: Corporate tax returns must be submitted, reflecting rental income and deductions.

Comparison Table

Conclusion:

As a final observation, the choice of purchasing properties in Cyprus under one’s name or through the use of a Cyprus registered company largely depends on the individual’s investment objectives, as well as the amount of funds to be put in. As simple as it can be for personal ownership of the property, the individuals are subjected to high rates of personal income tax over a small scope of regional tax deductions and high liability exposure. On the other hand, owning the property from a Cyprus company incorporates great tax benefits, wider deduction of expenses and full liability coverage.

Depending on one’s perspective and expectations, especially the long-term ones, real estate owned through a corporation appears to be the most appealing for significant tax benefits, asset protection and most importantly flexibility in estate planning. At Polycarpos Philippou & Associates LLC, we provide expert guidance to help you structure your estate in a way that optimizes both tax