Circular on the Tax Treatment of Income from Rentals Through Online Platforms

Circular on the Tax Treatment of Income from Rentals Through Online Platforms

Paragraph 1: This circular provides clarifications regarding the tax treatment of income from properties and accommodations offered for rent through online platforms such as Airbnb or Booking, via websites or otherwise. Specifically, the following are outlined:

Case 2: In the event that:

(a) The property from which the income is derived is registered or was obligated to register in the Registry of Self-Catering Accommodations, maintained by the Ministry of Tourism.

(b) The property owner is registered in the VAT Register and imposes a 9% VAT rate on the income from the property (provided that there is an obligation to register).

(c) The rental of the property is short-term, recurring, and usually to different individuals each time.

Paragraph 2: According to the Law on the Establishment and Operation of Hotels and Tourist Accommodations Law No. 34(1)/2019, as amended:

“Self-catering accommodation” means either an individual tourist furnished villa or an individual house or an individual apartment, which constitutes a “unit” under the Immovable Property (Possession, Registration, and Valuation) Law, which is not a “hotel” or “tourist accommodation.”
“Registry of Self-Catering Accommodations” means the registry maintained by the Ministry of Tourism in which all self-catering accommodations are registered.

Paragraph 3: Specifically, the following cases and their tax treatment for the property owner are recorded:

(a) The owner of the property (legal or natural person) manages the property for the purpose of rental through an online platform or otherwise, for short-term rentals.

The tax treatment of the property owner regarding income from rentals is as follows:

For income tax purposes, the taxable income is the profit, i.e., gross receipts minus expenses incurred solely and exclusively for the generation of income, capital allowances, and interest expenses, in accordance with the provisions of the Income Tax Law.
The income is not subject to a special defense contribution.
In the case that the owner is a natural person, it is subject to a GHS contribution on the profit, as calculated for income tax purposes. The GHS contribution is paid by the owner through self-assessment every six months, and the tenant is not obliged to withhold the contribution at the source.

(b) The owner of the property (legal or natural person) assigns the management of the property to a property manager for short-term rentals through an online platform or otherwise.

The tax treatment for the owner regarding income from rentals is as described in paragraph (a) above. It should be noted that the fee of the property manager is allowed to be deducted as an expense from the taxable income for income tax purposes.

(c) The owner of the property (legal or natural person) rents the property to a property manager-tenant, to whom they grant the exclusive use of the property on a short-term or long-term basis in exchange for a specified rent based on a rental agreement. The property manager assumes and is responsible for all expenses related to the property.

The tax treatment for the owner regarding income from renting the property is as follows:

For income tax purposes, the taxable income for a natural person is equal to the gross rents minus a 20% deduction on the gross rents, capital allowances, and interest expenses, in accordance with the provisions of the Income Tax Law. For a legal person, the taxable income is equal to the gross rents minus expenses incurred solely and exclusively for the generation of income, capital allowances, and interest expenses, in accordance with the provisions of the Income Tax Law.
When the owner is a tax resident of Cyprus and in the case of an individual who also has a residence (dwelling) in Cyprus, the gross rents reduced by 25% are subject to a special defense contribution, which is paid by the owner through self-assessment every six months unless the property manager is a legal entity, in which case the special defense contribution is paid by the property manager through withholding at source.
In the case that the owner is a natural person, it is subject to a GHS contribution on the gross rent, and this contribution is paid by the owner through self-assessment every six months unless the property manager is a legal entity, in which case the GHS contribution is paid by the property manager through withholding at the source.

4: It is emphasized that in the cases outlined in paragraphs 3(a) and 3(b) above, income from the rental is taxed on the owner, regardless of whether the property is provided to a relative or another person for management and regardless of whether this other person is the one registered in the Registry of Self-Catering Accommodations for the property being rented.

*The InteliSoftCY company does not assume any responsibility for payment of the above fee on behalf of its customers.