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Hello, Can you tell me do I need to register if I am renting rooms to tourists in my house which I also live in?

I am only guessing but I would think so as you are renting rooms to short term visitors  and thus have an untaxed unearned income ... But I think it's best to contact the CTA

Rental income is subject to:

(1) Income Tax if annual gross total income, including rental income, is more than €19500.

(2) Special Defense Contribution(SDC) if you are a permanent resident of Cyprus, calculated on a rate of 3% on the 75% of the annual gross rental income. Non Cyprus tax residents are exempt from SDC on any rental income from immovable property in Cyprus.

(3) GeSY contribution

Rental income is subject to GeSY contribution on a rate of 2,65% of gross rental income. Rental income is exempt from GeSY contribution if the owner of the leasing property is a legal person.

Irrespectively of the amount of rental income received you are obliged:

- If the tenant is an Individual , to file a self assessment for GeSY contribution on rental income twice a year (at 30/06 and 31/12 of each year) and pay the GeSY(payment code 704)

-If the tenant is a company then the tenant himself deducts and pays the GeSY contribution on rental income (payment code 714)

Further clarity

If you are a non-Cyprus tax resident you need to declare only your income from Cyprus sources and therefore your rental income in the Cyprus tax department.

Your rental income is also taxed under the Gesy law and not under the Special Defence Contribution Law

Tax treatment of rental income in Cyprus

If you are a Cyprus tax resident individual earning rental income, it is important to be aware of your tax and VAT obligations. In this article, we outline the main tax and VAT considerations that a Cyprus tax resident individual should be aware of, when renting out his/her property.

How does renting out a property impact my tax position?

Earning rental income from a property situated in Cyprus may give rise to the following direct taxes and contributions for a Cyprus tax resident individual:

Income Tax (IT)

Special Defence Contribution (SDC)

Contributions to the General Healthcare System (GHSC)

Value Added Tax (VAT)

Stamp Duty (SD).

Points to consider

The direct tax treatment of rental income in Cyprus depends on the following factors:

the tax residency and domicile status of the property owner

Whether he/she prepares audited financial statements and

the type (e.g., land or building) and age of the property.

What are my direct tax obligations when renting out property in Cyprus?

The direct taxes and contributions applicable on income earned by  a Cyprus tax resident individual from renting out property situated in Cyprus.

Income Tax

Rental income is pooled along with other taxable income streams and taxed at the progressive personal income tax rates ranging from nil to 35%, after allowing for relevant tax deductions.

A number of tax deductions maybe available to reduce the amount of rent subject to income tax. These are covered below.

SDC

SDC is applicable on the gross rent amount (no deductions available) at the effective tax rate of 2,25% (=75% x 3%).

SDC is only payable by Cyprus tax residents that are also Cyprus domiciled. Cyprus tax residents that are non-Cyprus domiciled are exempt from SDC.

GHSC

GHSC are applicable on the gross rent amount (no deductions available) at the rate of 2,65%.

GHSC are subject to an annual cap and are payable by all Cyprus tax residents, irrespective of domicile status.

Stamp Duty

In general, rental agreements are subject to stamp duty (capped), calculated using the progressive SD rates ranging from 0%-0,2%.

Available tax deductions for income tax purposes

The amount of (net) rent subject to tax is calculated by deducting from the gross rental  income the following items (where applicable):

Wear and Tear (W&T): Annual wear and tear are calculated as a percentage on the cost of acquisition of the asset and are deductible from taxable income. For example, the relevant percentage for commercial buildings is 3% per annum. No W&T is calculated and deducted when renting out land or buildings that are passed their useful economic life.

20% deemed expenses: A deemed expense equal to 20% of the gross rental income for maintenance and repairs of buildings. No such expense is available when renting out land.

Interest expense: Interest expense incurred for acquiring a property that generates rental income.

Contributions to the General Healthcare System: Contributions payable on the gross rent are deductible for income tax purposes.

VAT Considerations

The renting and/or leasing of immovable property is defined by a landlord – tenant relationship where the latter is granted exclusive possession of the property.

The renting and/or leasing of immovable property to a taxable person for the purpose of carrying on taxable activities, except for the leasing of a building used for residential purposes, is subject to VAT at the standard rate (currently at 19%).

The above provisions are applicable only for the renting/leasing of immovable property that commenced on or after 17 November 2017.

The benefit of earning rental income which is subject to VAT is that it allows the owner to claim VAT incurred on the acquisition/construction of the immovable property or expenses incurred for its refurbishment.

It should be noted that the owner has the right to opt not to tax on the rented/leased property under certain conditions. In order to exercise this option, the owner must notify the Cyprus Tax Authorities accordingly through the submission of VAT form ΤD1220. However, if this option is exercised the rental income will be considered to be exempt from VAT and thus the VAT incurred by the owner will remain as a cost. It must also be considered that once the option not to tax is exercised, it cannot be revoked unless the property is sold to a new owner.

Points to consider

When analysing the VAT treatment of rental income and how this impacts the owner/landlord, the following must be considered:

The type of the property to be rented out/leased (i.e. property used for commercial or residential purposes);

The activities performed by the tenant (i.e taxable or exempt);

The effective commencement date of the rental agreement/lease;

What actions need to be taken by an individual taxpayer?

Individuals earning rental income from Cyprus property should have in mind the following key tax compliance considerations:

Registration with the Cyprus Tax Authorities, if not already registered.

Submission of annual income tax return to declare the rental income.

Payment of the relevant taxes and contributions.

Informing their employer (if and where relevant) of their rental income (through the submission of form TD59) in order for the relevant income tax to be withheld via PAYE (please refer to Circular 54 issued by the CTA).

Registration for VAT purposes if the relevant VAT registration thresholds are exceeded and submission of quarterly VAT returns and payment of any VAT liability, in cases where the rental income is subject to VAT.

It is important to note that performing a conclusive tax assessment, requires careful consideration of all relevant facts and circumstances. It is therefore imperative to obtain tailored tax advice.

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I believe rooms are not allowed to be rented out. ..

License for Short-Term Rentals in Cyprus: Who Needs It and How to Obtain It?

Cypriot Real Estate is Perfect for Short-Term Rentals.

Especially if it is located close to the sea or in a picturesque historical center. At the same time, obtaining a license is simple and fast.

On average, you can rent an apartment near the Mediterranean coast for 150 euros per day, while prices for villas start at 270 euros per day. The longer the rental period, the lower the cost. Property owners usually cover the utility expenses. Anyone who is legally allowed to generate income in the country should take note of this business opportunity.

While long-term rental prices rose by approximately 50% in early 2023, the cost of short-term rentals increased by less (+30%). This is not only due to the overall population growth but also to increased expenses for landlords. Previously, it was sufficient to pay income tax and municipal fees, but now a registration fee has been added.

Those who want to delve into the topic of daily rental property regulations will find it useful to familiarize themselves with the Cypriot Law on the Regulation of the Establishment and Operation of Hotels and Tourist Accommodations, which served as the basis for the introduced innovations three years ago.

For a long time, the Cyprus Tourism Association (STEK) sought to regulate the activities of popular online platforms such as Airbnb and Booking.com since their scale had grown immensely, but not all entrepreneurs conducted their business on legal grounds. The treasury was losing millions of euros each year. However, this is the case in many other popular tourist destinations in Europe as well. Starting from July 2021, the Deputy Ministry of Tourism of the Republic of Cyprus strictly monitors transactions directly on the rental platform.

The government requires properties to be registered in the National Registry and obtain an individual number in order to start or continue earning income from short-term rentals of specific properties. Currently, about 20,000 properties are being rented through online platforms, and all of them are required to have a license number.

To properly register a property for rental, it is necessary to obtain a registration serial number in the National Registry (better to do it a couple of months before the hot tourist season). To register, you need to fill out a special form on the website , sign it, and send it back in PDF format. Several documents and compliance with specific conditions are required:

Identification document of the applicant.

Permission for the construction of the property.

Only completed projects can be registered. Buildings undergoing reconstruction or repair are not eligible.

Both houses and apartments can be registered.

The application can be submitted by an individual or a legal entity.

A representative of the owner can submit the application, provided that the appropriate authorization (power of attorney) is sent.

A recent invoice from the electricity company EAC will also be useful.

The taxpayer identification number must be available.

Valid property insurance must cover fire incidents and civil liability.

The requirements for the layout of premises must be met. For example, a 3-bedroom apartment must have at least 2 bathrooms.

The process of obtaining a license takes approximately 1 month from the date of application, so it is important not to delay as tourists make reservations well in advance.

The registration fee for each housing unit is 222 euros for 3 years. Thus, accommodation search websites now require the number of this license. Moreover, the transaction has become transparent. Platforms are obligated to provide the government with all data regarding the number and value of transactions for tax calculations. Income tax is calculated based on annual profit. Amounts below 16,000 euros are exempt from taxation. Additionally, landlords also pay VAT, which results in increased costs for luxury properties.

In Cyprus, short-term rentals are widespread throughout the island, as all cities to some extent are tourist destinations. However, the most desirable region for tourists is still the eastern coast of Famagusta, where the areas of Protaras, Ayia Napa, and Paralimni are located. Here, you can relax on the pristine beaches with soft white sand and azure waters.

In the area of the free territories of Famagusta, over 60% of real estate properties are successfully rented out for short-term stays. Despite the fact that housing prices have increased on average by 15% in the past year, and short-term rentals have risen by 30%, it can be concluded that this region is one of the most promising for entrepreneurs, as stated by Maryna Komarnytska, the regional manager from the DOM agency.

The simplest way to rent out property for short-term stays is to use the services of a professional property management company that organizes a continuous flow of clients and is always there to provide advice and assistance. Obtaining a license is mandatory for every owner.

Studies confirm that last year alone, over 80,000 properties were identified in Cyprus that were rented out without the appropriate license. This number is comparable to the overall volume of the island's hotel business. Therefore, active checks of landlords for compliance with housing registration conditions began in early 2022.

An interesting observation: when leaving rented accommodation, tenants in Cyprus often leave the keys in the mailbox. This says a lot about society and local customs.

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