Income, earned by a Cyprus tax resident individual, arising from the rental of immovable property which is situated in Cyprus is taxable both under the Cyprus Income Tax and the Special Contribution Tax legislation
Cyprus income tax
The taxation of rental income under Income Tax follows the below rules
- Rentals are taxed on an accruals and not receipt basis
- Rentals are taxed irrespective of the country of location of the rented property (double tax relief will be available in cases where the rental income is derived from property situated abroad.
Rental income has three allowable deductions:
- 20% deduction on rental income that represents a deduction granted for the revenue expenses incurred on the rented property
- Wear and tear allowance on the cost of the rented property. Note that:
2.1.1. 3% (33.33 years) wear and tear per annum is for commercial buildings (houses, offices, shops, showrooms, apartments).
2.1.2. 4% (25 years) wear and tear per annum is granted for hotels and factories.
2.1.3. The tax office has introduced an increased rate of 7% wear and tear per annum for any acquisition of hotels or factories made in the years 2012, 2013 or 2014 in an attempt to encourage expenditure and development.
2.1.4. No wear and tear is granted in the cost of land.
2.1.5. Such wear and tear allowances are restricted to the months of rental period.
Any interest on loan taken out for acquisition of the rented property. As with wear and tear, this interest is restricted to the months of rental period.
- Capital expenses made on the rented property are also entitled to a deduction of wear and tear.
Special contribution tax
Under the Special contribution tax, an amount of twenty five percent (25%) is deducted from the gross amount of rental income. After such deduction has been effected, the remaining gross amount is subject to special contribution tax at a rate of three percent (3%).