Introduction to Taxation of Rental Income in Cyprus
The rental property market in Cyprus has seen significant growth in recent years, attracting both local and international investors. Whether you’re an individual property owner or a Cypriot Company, understanding the tax implications of rental income is crucial for optimizing your investment returns and ensuring compliance with Cypriot tax law. The taxation landscape in Cyprus is multifaceted, with different rules applying to individuals and companies. Proper tax planning can make a substantial difference in your net income, as well as in your long-term financial strategy.
In this guide, we provide a detailed exploration of the taxation of rental income in Cyprus. We will examine the tax obligations for both private individuals and Cypriot companies. By understanding these regulations, property owners can make informed decisions, minimize their tax liabilities, and take full advantage of the available deductions and reliefs.
Taxation of Rental Income for Individuals
When an individual owns rental property in Cyprus, the income generated from renting out the property is subject to several forms of taxation, including income tax, special defence contribution (SDC), and general healthcare system (GHS) contributions. Below is a breakdown of each applicable tax:
a. Income Tax
Individuals must declare rental income as part of their annual income. The rental income is added to any other income streams (e.g., salary, dividends) and taxed according to the following progressive rates:
| From | To | Tax Rate (%) | Accumulated tax (EUR) |
| 0 | 19,500 | 0 | 0 |
| 19,501 | 28,000 | 20 | 1,700 |
| 28,001 | 36,300 | 25 | 3,775 |
| 36,301 | 60,000 | 30 | 10,885 |
| 60,001 | and above | 35 | – |
It is essential to note that individuals can deduct certain expenses related to the rental property, such as maintenance costs, interest on loans used to acquire the property, and insurance premiums. Additionally, there is a 20% standard deduction for wear and tear on the gross rental income.
Moreover, all property owners with taxable income exceeding €19,500, regardless of their country of tax residency, must submit an annual tax return in Cyprus. This filing is necessary to declare rental income and fulfil income tax obligations within the jurisdiction.
b. Special Defence Contribution (SDC)
Cypriot residents are also subject to the Special Defence Contribution (SDC) on rental income. The SDC is calculated at 3% on 75% of the gross rental income. For example, if the annual rental income is €20,000, the SDC would be calculated as follows:
• 75% of €20,000 = €15,000
• SDC: 3% of €15,000 = €450
SDC is only paid by Cyprus tax residents that are also Cyprus domiciled. Cyprus tax residents who are non-Cyprus domiciled are exempt from SDC.
Property owners who are not tax residents of Cyprus are not required to pay SDC.
c. General Healthcare System (GHS) Contribution
Individuals earning rental income must also contribute to the General Healthcare System (GHS). The contribution is levied at 2.65% on the gross rental income, with a cap of €180,000 in total annual income from all sources.
This applies to both Cyprus and non-Cyprus tax resident property owners, and irrespective of domicile status.
Taxation of Rental Income for Cypriot Companies
When a Cypriot company owns rental property, the tax implications differ from those of individual ownership. Cypriot Companies are subject to the following taxes on rental income:
a. Corporation Tax
Rental income earned by a Cypriot company is subject to corporation tax at a flat rate of 12.5%. Companies can deduct expenses related to the property, including interest on loans, maintenance costs, insurance, and other allowable expenses, similar to individuals.
b. Special Defence Contribution (SDC)
Like individuals, the rental income subject to SDC at the rate of 3% on 75% of the gross rental income.
It’s noted that following a Circular issued by the Cyprus Tax Authority on 13 September 2023, there has been a significant update regarding the tax treatment of rental income derived from self-catering accommodations rented out via online platforms. According to this Circular, such rental income, subject to certain conditions, will be treated as business income. As a result, it will be subject solely to Corporation Tax at the standard rate of 12.5% and will be exempt from SDC.
c. General Healthcare System (GHS) Contribution
Corporate entities are not required to contribute to the General Healthcare System (GHS) in terms of rental income.
Tabular Outline of the Taxation of Rental Income in Cyprus for both individuals and Cypriot companies:
| Tax Component | Individuals | Cypriot Companies |
| Income Tax / Corporation Tax | Progressive Rates: – €0 – €19,500: 0% – €19,501 – €28,000: 20% – €28,001 – €36,300: 25% – €36,301 – €60,000: 30% – Above €60,001: 35% Deductions: – Maintenance costs – Interest on loans – Insurance premiums – 20% standard deduction for wear and tear Applicability:– Applies to both Cyprus and non-Cyprus tax resident property owners, regardless of domicile status | Flat Rate: – 12.5% on rental income Deductions: – Maintenance costs – Interest on loans – Insurance premiums – Other allowable expenses |
| Special Defence Contribution (SDC) | Rate: – 3% on 75% of gross rental income Applicability: – Only for Cyprus tax residents who are also Cyprus domiciled. | Rate: – 3% on 75% of gross rental income Exception: – Income from self-catering accommodations rented via online platforms is exempt from SDC when treated as business income |
| General Healthcare System (GHS) Contribution | Rate: – 2.65% on gross rental income Cap: – Applies on total annual income up to €180,000 Applicability: – Applies to both Cyprus and non-Cyprus tax resident property owners, regardless of domicile status | N/A |
Key Considerations for Tax Planning
Tax efficiency is crucial in maximizing the profitability of rental property investments. Below are strategies that could help in optimizing your tax position:
• Structuring Ownership: Evaluate the benefits of holding property as an individual versus within a corporate entity. A corporate structure may offer lower tax rates (e.g., 12.5% Corporation Tax) and greater flexibility in deducting expenses, while individual ownership could benefit from progressive tax rates and exemptions.
• Deductible Expenses: Ensure that all allowable expenses are properly documented and deducted from the gross rental income to reduce taxable income. Regular maintenance, repairs, and insurance are common deductions.
• Reviewing Domicile Status: For individuals, reviewing domicile status could significantly impact the liability for the Special Defence Contribution. Non-domiciled individuals are exempt from SDC, which could lead to substantial savings.
Conclusion
Understanding and managing the tax obligations for rental income in Cyprus is essential for property owners and investors, whether individuals or companies. With proper tax planning, you can optimize your financial outcomes, ensuring compliance with Cypriot tax laws while minimizing liabilities. Given the complexities of the tax landscape, including recent changes in legislation, it is advisable to seek expert legal and tax guidance tailored to your specific circumstances. Our firm is here to provide the expertise you need to effectively manage your rental property investments and achieve the best possible results. For personalized assistance, don’t hesitate to contact us at Polycarpos Philippou & Associates LLC.