Investing in Cyprus real estate for rental purposes remains one of the most popular strategies. The high return on investment (ROI) demonstrated by properties in Limassol, Paphos, and Larnaca imposes certain tax obligations on the owner. The rental income tax system in Cyprus has its own unique features, including specific levies for health and defense, as well as a progressive income tax scale. Understanding these nuances allows investors to accurately calculate their net profit and avoid penalties from the tax department.
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Income Tax and updated non-taxable minimum
The first level of taxation is personal income tax. Cypriot law provides one of the highest tax-exempt thresholds in Europe, which was further increased in 2026 to support taxpayers. According to the current scale, if your total annual income (including rent, salary, and other sources) does not exceed €22,000, you are completely exempt from income tax.
For amounts exceeding this threshold, the following progressive scale applies:
- From €22,001 to €32,000 – 20%
- From €32,001 to €42,000 – 25%
- From €42,001 to €72,000 – 30%
- Over €72,001 – 35%
An important benefit for landlords is the automatic deduction of 20% of gross rental income. This amount is recognized by the state as expenses for building depreciation and maintenance, so only the remaining 80% of revenue is subject to income tax. Landlords also have the right to deduct interest expenses on the loan if the property was purchased with a mortgage for rental purposes.
Contributions to the health care system (GESI)
The second mandatory payment is the General Health System (GHS) contribution. This fee is mandatory for all property owners receiving rental income on the island, regardless of their tax status or country of residence.
The current GESI contribution rate for rental income is 2.65%. It’s important to remember that this tax is calculated on the full (gross) rent amount, without any deductions or preferential thresholds. Even if your total income is within the tax-exempt minimum (€22,000), GESI contributions must be paid in full on every euro received from the tenant. Payments are made twice a year through the official tax portal.
Special Defense Contribution (SDC)
The third element of the tax burden is the Special Contribution for Defense (SDC). This tax applies exclusively to property owners who are recognized as tax residents of Cyprus and domiciled. The SDC rate for rentals is 3%, calculated based on 75% of the gross rental income.
This is where the key advantage for foreign investors lies: if you are a tax resident of Cyprus but hold non-domicile status (issued to foreigners for the first 17 years of residence on the island), you are completely exempt from paying special defense contribution. This tax also does not apply to non-residents of Cyprus. Non-dom status remains one of the most powerful legal tax optimization tools for expats.
Value Added Tax (VAT) and short-term rentals
Tax authorities are paying particular attention to the short-term rental segment (through platforms like Airbnb or Booking). If rental activity becomes systematic and the annual turnover exceeds €15,600, the owner is required to register for VAT.
In this case, VAT is added to the cost of accommodation at the preferential “tourist” rate of 9%. For long-term rentals (over 30 days for individuals), there is generally no VAT liability. Failure to register for VAT while actively operating a rental business can result in significant fines.
Reporting procedure and digital declaration
The income declaration process in Cyprus has been completely digitalized through the TaxisNet system. The tax return (Form IR1) is submitted annually. Property owners are required to independently calculate and pay advance tax payments in two installments: mid-year and at the end of the current year.
Timely reporting is essential not only for legal compliance but also for future real estate transactions. When selling a property, you will need a Tax Clearance certificate confirming the absence of outstanding taxes. Any undeclared rental income may prevent the sale from being completed. It is recommended to retain a licensed accountant for an annual audit to ensure transparency of your investment history.
