Airbnbs in Cyprus

A question that is lingering in many people's minds is "what taxes do I have to pay for my Airbnb?"...and that has been clarified by the Cyprus Tax Department in a recent circular.

The circular applies to all accommodation rentals through online platforms (e.g. Airbnb, Booking.com etc.) and other means, as "self-service accommodations".

Let's start by clarifying that in Cyprus, as in most other countries, these establishments must be registered in a special Register of Self-Service Accommodations in order to be able to be utilised as such.

In a nutshell, income from these establishments will in most cases be taxed only with Income tax and these are the cases where the property owners are considered to be generating the income as part of their ordinary business activities.

However, this is not always the case.

Let's dive into a few more details:

• What is considered to be "ordinary business activities" in these cases?

1. the property from which the income is derived is (or should have been) registered in the "Register of Self-Service Accommodations" as this is described in the relevant legislation; and
2. the property owner is VAT registered and imposes VAT at 9% on the income from the property (provided that a VAT registration obligation exists); and
3. the rental of the property is short-term, repetitive and generally made to different persons each time.

• Which "gain" is subject to Income Tax?

The gross receipts less the expenses which are incurred wholly and exclusively on the production of that income, less capital allowances on the property and less any interest expense on the loan to acquire the property.

• General Health Scheme ("GHS" / GESY) contributions?

Yes, when the property owner is a physical person, the same gain which is subject to Income Tax is also subject to GHS contributions. These are paid though self-assessment per six months.

• What if the owner delegates the management?

When the property owner delegates the management of the establishment to a property manager, the same as the above apply and the manager's fee is a deductible expense from the owner's taxable gain for Income Tax and GHS purposes.

• So, when is the tax treatment not the same?

When the property owner rents the property to a property manager, granting the manager exclusive rights to the exploitation of the property, based on a short-term or long-term rental agreement for a predetermined rental amount and the manager undertakes to bear all the expenses of the property. In such cases the income is subject to both Income Tax and Special Defence Contribution (SDC). The following apply:

1. Income Tax: The gain is subject to Income Tax as usual, however for individuals the deductible expenses are fixed to 20% of the gross receipts.
2. SDC: The amount subject to SDC is the gross income reduced by 25% and at the rate of 3%. This is withheld by the property manager if it's a legal person. If not, it is self-assessed and paid every six months.
3. GHS contributions apply when the property owner is a physical person as mentioned above.

PGE&Co remains at your disposal for any clarifications and for further assistance that might be needed on this or on any other matter.