Taxes on Rental Property in Cyprus: What Property Owners Need to Know
24
09.2024
Renting out residential property in Cyprus is becoming an increasingly popular way to generate stable passive income. Attractive living conditions, growing demand for rental housing from expats and tourists, and high rental yields—up to 7-10% annually—make this market one of the most promising in Europe.
As interest in Cyprus as an international business and tourism hub continues to rise, the demand for rental properties grows, creating excellent opportunities for investors looking to rent out their properties in Cyprus.
However, it is important to be aware of the tax obligations that arise from rental income. Cyprus’s tax system has specific rules depending on the type of taxpayer, with different regulations for individuals and companies. Proper tax planning can significantly impact the overall return on investment and assist in strategically managing your assets.
In this article, we will explore the taxes that individuals must pay when renting out property in Cyprus and how to effectively optimize the tax burden. In our other articles, you can learn more about the taxes related to property rentals for legal entities.
Taxes on Renting Property in Cyprus for Individuals
When an individual rents out property in Cyprus, the income is subject to several types of taxes, including income tax, the Special Defence Contribution (SDC), and the General Healthcare System (GESY) levy. Let’s take a closer look at each tax:
1. Income Tax
Rental income is included in the individual’s total income and is taxed at progressive rates. Here are the current income tax rates in Cyprus:
| Income (€) | Tax Rate (%) |
| Up to 19,500 | 0% |
| 19,501 – 28,000 | 20% |
| 28,001 – 36,300 | 25% |
| 36,301 – 60,000 | 30% |
| Over 60,000 | 35% |
Tax Deductions for Landlords in Cyprus
Individuals can reduce their taxable income through certain deductions, such as expenses for repairs and maintenance, interest on loans taken to purchase the property, and insurance premiums. Additionally, a standard deduction of 20% of rental income for property depreciation is allowed. This helps lower the taxable base and, in turn, reduces the tax liability.
All tax residents of Cyprus with income exceeding €19,500 must file an annual tax return to meet their tax obligations. Taxes on rental income are paid through a dedicated tax portal.
2. Special Defence Contribution (SDC)
Cyprus residents with domicile status must pay the Special Defence Contribution (SDC) on rental income. This tax applies to 75% of the rental income, and the contribution rate is 3%. This means the tax is only charged on a portion of the rental income, not the full amount.
To calculate the SDC, follow these steps:
- Calculate 75% of the annual rental income.
- Apply the 3% tax rate to that amount.
Example: If the annual rental income is €25,000:
- 75% of €25,000 = €18,750
- €18,750 × 3% = €562.50
It’s important to note that only Cyprus residents with domicile status are required to pay this tax. Non-residents, as well as Cyprus residents with Non-Domicile status, are exempt from SDC. This exemption is a key benefit for those who do not plan to live in Cyprus permanently or hold Non-Domicile status, significantly reducing the tax burden on rental income.
Find out more about how to become a tax resident of Cyprus in 60 days and obtain Non-Domicile status.
3. General Healthcare System (GESY)
The General Healthcare System (GESY) levy is mandatory for all citizens and residents of Cyprus, including employees, self-employed individuals, and those earning rental income. The contribution rate is 2.65% of rental income.
This levy is required regardless of the taxpayer’s residency or domicile status. Rental income must be declared in the tax return, and GESY contributions are paid alongside income tax, ensuring full compliance with the state’s tax obligations.
The GESY system ensures equal access to healthcare for all participants, funded in part by contributions from rental income.
Annual Property Tax in Cyprus
One of the significant advantages of owning property in Cyprus is the absence of an annual property tax. This means you don’t pay taxes simply for owning property, reducing ongoing expenses and making Cyprus an attractive destination for long-term real estate investments, particularly for foreigners planning to rent out their properties. Rental income taxes for foreigners in Cyprus can be optimized with the right approach, making this market especially beneficial for international investors.
Taxes on rental income from property in Cyprus are an important consideration for property owners.
Proper planning and professional assistance can help you optimize your taxes and maximize the return on your investment.
Feod Group provides legal consultations and support on tax matters and property management in Cyprus.
Contact us to learn more and receive personalized recommendations.
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FAQ
When renting out property in Cyprus, individuals must pay several types of taxes: income tax (Income Tax) with progressive rates ranging from 0% to 35%, a special defence contribution (SDC) for domiciled residents, and a contribution to the General Healthcare System (GESY) at a rate of 2.65% of rental income.
The special defence contribution is only paid by domiciled residents of Cyprus. If you are not a domiciled resident or hold Non-Domicile status, you are exempt from paying this tax.
You can reduce tax liabilities by using available deductions and exemptions. Individuals can lower their taxable income by accounting for expenses like repairs, mortgage interest, and applying a standard 20% deduction from rental income for property depreciation. Additionally, obtaining Non-Domicile status exempts you from paying the SDC.
Landlords must declare rental income in their tax returns and pay the relevant taxes through the special tax portal.
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