Taxation of Rental Income in Cyprus
Detailed guide on rental income taxation in Cyprus for residents and non-residents. Learn tax brackets, deductions, and treaty applications. Rental income in Cyprus is taxable for both residents and non-residents. The system ensures fairness by applying the same tax brackets but distinguishes based on residency status for allowances and treaty benefits.
Cyprus Tax Rules for Residents
• Residents are taxed on worldwide income, including Cyprus rental income.
• Rental income is added to total taxable income.
• Progressive tax brackets apply:
– 0% on income up to €19,500.
– 20% on €19,501–€28,000.
– 25% on €28,001–€36,300.
– 30% on €36,301–€60,000.
– 35% on income above €60,000.
• Residents may deduct expenses such as repairs, insurance, and mortgage interest.
Cyprus Tax Rules for Non-Residents
• Non-residents are taxed only on income derived from Cyprus sources.
• Same tax brackets apply, but deductions are more limited.
• Double Tax Treaties (DTTs) often prevent double taxation.
• Withholding tax may apply to certain payments, depending on treaty provisions.
Allowable Deductions
• 20% of gross rental income is automatically deductible as notional expenses.
• Additional deductions include property maintenance, insurance premiums, and local property taxes.
• Mortgage interest for rental properties is deductible if the property is financed in Cyprus.
Social Insurance and Contributions
• Rental income is also subject to a 3% contribution to the Special Defence Contribution (SDC) for residents.
• Non-residents are exempt from SDC unless domiciled in Cyprus.
• This applies in addition to income tax.
Case Study: Resident Landlord in Nicosia
A Cypriot resident earns €12,000 annually in rental income. After a 20% notional deduction (€2,400), taxable income is €9,600. As total annual income is under €19,500, no income tax applies, but 3% SDC (€360) is payable.
Case Study: Non-Resident Investor in Paphos
A British non-resident earns €15,000 in rental income from a villa. After a 20% notional deduction, €12,000 is taxable. Tax due: around €240 at 20% bracket after thresholds. No SDC applies due to non-resident status, and the Cyprus DTT prevents double taxation.
Checklist for Cyprus Landlords on Rental Tax Compliance
1. Declare all rental income annually.
2. Apply the allowable 20% notional deduction.
3. Deduct eligible expenses (insurance, maintenance, mortgage interest).
4. Pay Special Defence Contribution if resident.
5. Retain receipts for audit and treaty compliance.
FAQs on Rental Income Taxation
Q: Do residents and non-residents pay different tax rates?
A: No, the same progressive rates apply, but deductions differ.
Q: Is there double taxation on rental income?
A: No, DTTs usually eliminate double taxation.
Q: Do I need to register for VAT as a landlord?
A: Only if providing short-term rentals exceeding thresholds.
Q: Can mortgage interest be deducted?
A: Yes, for residents and some non-residents, subject to conditions.
Q: Do retirees with pensions still pay rental income tax?
A: Yes, rental income is taxable regardless of pension status.
Final Recommendations
Cyprus’s rental income taxation framework is transparent but requires careful compliance. Residents and non-residents alike should declare income, apply deductions, and leverage DTTs to minimise tax liability.