Zoe Christodoulou
On 13 September 2023, the Tax Department published Circular with number 10/2023 (Tax Circular) clarifying the tax treatment of income derived from properties offered for short-term accommodation through online platforms such as Airbnb or Booking.com.
According to the Tax Circular, the income from such rental properties may be considered to be derived from a business activity which is taxable in accordance with the Income Tax Law. The specific conditions for taxation are set out below.
When a host may be taxed?
The owner will be considered to have an income derived from a business activity and will be taxed in accordance with the Income Tax Law provided that the below conditions are met:
a) The property from which income is derived is registered (or should have been registered) in the Self-Catering Properties Register; and
b) The owner is registered (or should have been registered) in the VAT Register and imposes a 9% VAT charge on the income derived from the property; and
c) The property is offered and rented on an ongoing basis as short-term accommodation to different persons.
How a host will be taxed?
The Tax Circular clarified the tax treatment of short-term rentals by providing the following three scenarios:
I. The owner of the property utilizes the property for short-term accommodation offered through online platforms or via other means:
The owner’s net income derived from such rental activity is taxed in accordance with the Income Tax Law. The income is not subject to Special Defense Contribution (SDC) but may be subject to General Healthcare System (GHS) contributions, depending on whether the owner is a natural person or not.
II. The owner of the property has assigned the management of the property to a property manager to utilize the property for short term accommodation offered through online platforms or via other means:
The provisions of Scenario (I) above apply. It is worth noting that the property manager fee is deductible as an expense from the owner’s taxable income for income tax purposes.
III. The owner has granted exclusive rights to the property to a property manager for a set rental fee on the basis of a short-term or long-term rental agreement:
If the owner is a natural person, the taxed income will equal the gross rental income minus 20% discount. If the owner is a legal entity, the taxed income will equal the gross rental income minus certain expenses which occurred exclusively for the acquisition of the rental income.
Further, in the case where the owner is domiciled and is a tax resident of Cyprus, the gross rental incomes minus 25% will be subject to SDC payable every 6 months. In the case where the owner is natural person, GHS contributions also need to be made.
Should you wish to discuss this legislation and what it means for your operations, please do not hesitate to contact us. Our team of experts is readily available to provide you with the insights and guidance necessary to ensure informed business decisions and peace of mind.
* This publication has been prepared as a general guide and for information purposes only. It does not purport to be comprehensive or to render professional advice. Before making any decision or taking any action that may affect you and/or your business, bespoke advice should be obtained.
