The rental income earned by a Cyprus tax resident, either physical or legal person, from an immovable property situated either in Cyprus or abroad is subject to taxation in Cyprus
Physical person – Income Tax
The Rental income earned by physical persons is added with the employment income and any other income earned by the individual and is subject to tax in Cyprus as per the tax scale applicable for individuals. The tax scales of the fiscal year 2012 are as follows:
Euro Tax Rate
0 – 19.500 Nil
19.500 – 28.000 20%
28.000 – 36.300 25%
36.300 – 60.000 30%
Over 60.000 35%
20% of the rental income is excluded from taxation, capital allowance of 3% on the cost of the building can be calculated and deducted from the rental income and any interest on loan obtained for financing the rented building is also deducted from rental income.
Special Defence Contribution
75% of the gross amount of Rental income is subject to 3% special defence contribution. The special defence contribution is paid in 6 month intervals on 30th of June and 31 st of December each year.
Legal person – Income Tax
Rental income earned by legal persons i.e. Companies is added with the profits generated by the Company from its core activities and is subject to corporation tax at the rate of 10%. Any expenses incurred for the maintenance and running of the building like repairs and maintenance, water, electricity and municipality taxes are deducted for tax purposes.
Special Defence Contribution
75% of the gross amount of Rental income is subject to 3% special defence contribution. The special defence contribution is paid in 6 month intervals on 30th of June and 31stof December each year.
Tax withheld on Rent expense
In accordance with the amendment in the special defence contribution law applicable from 1 July 2011 onwards, the Company is obliged to deduct the special defence contribution from the rent expense and pay to the landlord the net amount i.e. gross rent minus special
defence contribution on rent expense. The special defence contribution deducted from the rent expense should be paid by the Company to the Tax authorities within one month after the end of the relevant month.
A Company, as per the rent agreement, should pay gross rent of Eur 800 to the landlord for August. The procedure should be as follows:
The Company should withhold from payment the special defence contribution and pay to the landlord the net which is calculated as follows:
Eur 800 – (Eur 800 * 75% * 3%) = Eur 782
The special defence contribution withheld from payment for Eur 18 should be paid until 30 September to the Income Tax department with the tax form I.R. 601.
The landlord should obtain from the Company a tax form called I.R. 614 confirming withholding of tax and payment to the Tax department which should support his tax declaration so as to exempt from additional payment of tax.
Tax imposed overseas
Any tax withheld overseas on rental income can be deducted from the tax on rental income imposed in Cyprus irrespective of the existence of a double taxation treaty. It should be noted that the tax paid overseas should be supported with an original tax certificate or tax receipt issued and signed by the Tax authorities abroad so as to be accepted by the Cyprus tax uthorities.