Taxes in Cyprus on Rental Income: Calculation, Rates, and Benefits

If you are considering investing in real estate for the purpose of generating income, it is important to understand how rental income is taxed. In many countries, returns of 10–15% from rental income are often promised, but due to significant taxes, the actual profit turns out to be much lower. In Cyprus, the situation is different: here you have moderate tax rates, transparent rules, and legal deductions, so the net yield is often higher than in countries with formally higher figures.

This article examines how much tax must be paid when renting out property in Cyprus, both for individuals and for companies.

Annual Property Tax in Cyprus

One of the significant advantages of owning real estate in Cyprus is the absence of an annual property tax. This means you do not pay simply for owning property, which reduces your fixed costs and makes Cyprus attractive for long-term real estate investments, especially for foreigners who plan to rent out their properties.

This factor is particularly important for foreign investors purchasing residential or commercial properties for rental purposes. Unlike many European countries where property ownership tax may range from 1% to 5% of the property’s value per year, Cyprus has no such expenses.

As a result, property owners receive a more stable net rental income and can plan their investments more efficiently without worrying about additional yearly obligations.

Taxes on Rental Income in Cyprus for Individuals

When an individual rents out property in Cyprus, the income is subject to three main types of taxes:

• income tax (Income Tax);
• contribution to the General Healthcare System (GeSY);
• Special Defence Contribution (SDC).

Let’s take a closer look at how rental income taxes in Cyprus are calculated and what tax benefits apply.

1. Income Tax

Rental income is included in the individual’s total annual income and taxed under a progressive rate scale. However, the main advantage of the Cypriot tax system is that only 80% of the rental income is taxable. That means 20% of the rental income is exempt from taxation. Additionally, the first €19,500 of annual income is fully tax-free.

Current income tax rates in Cyprus:

Tax Benefits in Cyprus for Landlords

Taxpayers can further reduce their taxable income through legal deductions:

• Depreciation allowance: 3% per year on the value of the building (excluding land).
• Mortgage interest: if the property was purchased with a mortgage, all interest paid to the bank can be deducted from income. For example, if you paid €3,000 in mortgage interest over the year, that amount reduces your taxable base.
• Tax-free threshold: the first €19,500 of total annual income is completely exempt from tax.

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. Contribution to the General Healthcare System (GeSY)

GeSY is the unified national healthcare system of Cyprus, similar to public healthcare insurance schemes in other European countries. It was introduced to ensure that all citizens and residents have access to quality medical services.

The GeSY contribution is mandatory for all citizens and residents of Cyprus, including employees, self-employed individuals, and those earning income from property rental.

• Rate: 2.65% of the gross rental income.
• The contribution is calculated before any deductions.

This payment is independent of Non-Dom status and cannot be deducted from income. It is a fixed obligation for all tax residents who earn income in Cyprus. Thus, even if you are not liable for income tax (for example, your income is below €19,500), the GeSY contribution is still mandatory.

3. Special Defence Contribution (SDC)

This contribution applies only to Cyprus tax residents who do not hold Non-Dom status. Non-residents and Cyprus residents with Non-Domicile tax status are exempt from paying SDC. This exemption is a major advantage for those who do not plan to live permanently in Cyprus or hold Non-Dom status, as it significantly reduces the overall tax burden on rental income.

SDC rate: 3% on 75% of the gross rental income.

Example: Tax Calculation on Rental Income in Cyprus

Example calculation for a Cyprus tax resident with Non-Dom status, renting out an apartment for €1,500 per month (€18,000 per year):

Thus, the total annual tax burden on rental income of €1,500 per month amounts to only €477 per year, equivalent to an effective tax rate of about 2.6% of annual income. This is one of the lowest tax burdens in Europe on rental property income.

Corporate Taxes on Rental Income in Cyprus

If the property is owned by a Cypriot company, the rental income is subject to corporate taxation. This option is often chosen by investors who own multiple properties or manage real estate professionally, as a corporate structure provides more opportunities for deductions and strategic tax planning.

• Corporate tax rate: 12.5% on net taxable profit.
• The taxable base is calculated after deducting all allowable expenses related to owning and managing the property. Unlike individuals, companies have a much broader list of deductible expenses.

Such expenses include mortgage interest used to purchase the property, repair and maintenance costs, professional services (accountants, lawyers, property managers), and building depreciation (3% per year on the value of the property). In addition, the company may deduct insurance, utilities, and property management expenses.

Advantages of a Corporate Structure

• ability to account for real expenses (including depreciation, professional services, management, and financing costs);
• reduction of the effective tax rate through deductions;
• long-term tax efficiency for owning multiple or large rental assets;
• flexibility in ownership structuring through holding and investment companies.

Taxes on rental income in Cyprus are an important aspect for property owners. Proper planning and professional assistance will help optimize your taxes and maximize your investment returns.

Feod Group offers legal consulting and support on matters of taxation and property management in Cyprus.

Contact our office in Larnaca or online to receive a personalized solution for your situation!