The Rental Income Tax in Cyprus is an important aspect of the tax system for property owners. Depending on the type of rental—short-term or long-term—the tax obligations can vary significantly. Short-term rentals typically involve renting out property to tourists for a few days or weeks through platforms like Airbnb or Booking.com. Long-term rentals, on the other hand, involve leases for longer periods, usually a year or more. It is important to understand the differences in taxation for these types of rentals to avoid legal issues and optimize tax payments.
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Taxation for Short-Term Rentals
Income Tax
Income from short-term rentals in Cyprus is considered a business activity, meaning that property owners need to take this into account when planning their tax obligations. Income tax is levied on a progressive scale, starting at 20% and reaching up to 35% for higher incomes. For example, if your rental income is €24,000 per year, the taxable base will be reduced by allowable expenses such as utilities, property management, and other rental-related costs. The remaining amount will then be taxed at the applicable rates.
Value Added Tax (VAT)
Property owners engaged in short-term rentals must consider VAT obligations. If the annual rental income exceeds €15,600, the owner must register as a VAT payer. The VAT rate for short-term rentals is 9%. This means that the landlord must add VAT to the rental price, which can affect the final cost for the tenant. Additionally, owners can reclaim VAT on expenses related to the property, such as repairs and maintenance.
General Healthcare System Contribution (GHS)
The GHS contribution applies to the gross rental income at a rate of 2.65%. This contribution is mandatory for all tax residents of Cyprus, regardless of their domicile status. The GHS contribution is paid twice a year: by June 30th and December 31st. For example, if your annual rental income is €24,000, you will need to pay €636 as a GHS contribution. This obligation applies to all types of rentals, including short-term rentals.
Licensing for Short-Term Rentals
Property owners planning to rent out their properties on short-term rental platforms like Airbnb are required to obtain a special license. Licensing is regulated by local authorities and aims to ensure tenant safety and compliance with quality standards for the accommodation provided. The licensing process includes verifying that the property meets established standards and may involve paying relevant fees. Failure to obtain a license can result in significant fines and a ban on conducting such activities.
Taxation for Long-Term Rentals
Income Tax
Income from long-term rentals is also subject to income tax on a progressive scale. However, the taxable base for long-term rentals can be significantly reduced through fixed deductions and depreciation. For example, owners can claim a 20% deduction for property maintenance and repairs. Additionally, property depreciation over 33 years is allowed, which reduces the taxable amount. Furthermore, interest on loans taken for property acquisition can also be deducted from the taxable base, making long-term rentals more tax-efficient.
Special Defence Contribution (SDC)
For Cyprus residents and domiciled individuals, long-term rental income is subject to a Special Defence Contribution at a rate of 2.25% on the gross income. Unlike short-term rentals, this contribution does not apply to non-residents and individuals without domicile status in Cyprus.
For example, if you rent out your property on a long-term basis and earn an income of €12,000 per year, you will need to pay an SDC of €270. This contribution is also paid twice a year, coinciding with the deadlines for paying income tax and GHS contributions.
General Healthcare System Contribution (GHS)
The GHS contribution rules for long-term rentals are similar to those for short-term rentals. The contribution rate is 2.65% of the gross income and is also paid twice a year. For instance, if your annual income from long-term rental is €12,000, the GHS contribution would be €318. It is important to note that the GHS contribution is mandatory for all tax residents, regardless of the type of rental.
Comparison of Tax Obligations for Short-Term and Long-Term Rentals
Comparing the tax obligations for short-term and long-term rentals helps to better understand which type of rental might be more advantageous for property owners. Short-term rentals are generally subject to more taxes and fees, including VAT, which can increase the overall tax obligations of the owner. In contrast, long-term rentals offer more opportunities for deductions and depreciation, allowing for a reduced taxable base.
For example, an owner renting out an apartment for short-term stays with an annual income of €24,000 may face higher overall tax liabilities due to the need to pay VAT and a greater volume of mandatory contributions. Meanwhile, an owner renting the same apartment on a long-term basis with an annual income of €12,000 can benefit from significant tax deductions and avoid VAT, making long-term rentals more attractive from a tax perspective.
Understanding the tax obligations when renting out property in Cyprus is crucial for all property owners. It is important to consider the differences in taxation between short-term and long-term rentals to optimize tax payments and avoid legal issues. Obtaining a special license for short-term rentals and complying with all legal requirements is also a vital step for successfully conducting business in this sector. It is recommended to consult with professional tax advisors for personalized guidance and to minimize tax risks.
