On September 13, 2023, Cyprus Tax Department released guidelines on taxing rental income from self-service accommodations via online platforms like Airbnb and Booking. This news has stirred up the sharing economy sector in Cyprus.
It appears that according to the tax circular, rental income generated by the owner from such activities is classified as business income and is liable to be taxed under Article 5 of the Income Tax Law, rather than Article 3(2)(b) of the Special Defense Contribution Law.
This regulation comes into play in a handful of cases. First, the property from which the income is derived must be registered in or obligated to be registered with the Cyprus Self-Service (sharing economy) Establishments Register. Another regulation stipulates that property owners must either be registered with the VAT register or obligated to register, in which case they are charged with a nine-percent VAT on the income generated. Thirdly, the property must be repeatedly leased to various individuals for short-term durations.
Cyprus Tax Authorities have outlined the scenarios in which the income generated is classified as business income.
In the first case, when the property owner, whether an individual or a legal entity, operates the property for business purposes, the income generated is subject to income tax, calculated by deducting expenses from gross receipts. Notably, there is no Special Defense Contribution levied. If the owner is an individual, they are responsible for General Health System contributions, paid through self-assessment every six months.
In the second scenario, when the property owner, whether an individual or a legal entity, designates an administrator to manage the property, the treatment follows the same income tax guidelines. However, there is a key difference: the administrator’s salary can be offset against the owner’s income tax declaration, and the administrator is exempt from GHS contributions.
In the event when the income generated is treated as rental income, the owner leases the property, whether for a short or long-term period, and allows the leaseholder to further sublease the property to third parties, with the leaseholder covering the associated expenses.
This arrangement results in the property’s rental income being subject to Income Tax and Special Defense Contribution for the owner, with no General Health System obligation for the leaseholder.
In conclusion, the issuance of this circular serves as a comprehensive guide to understanding the intricacies of tax treatment for self-service (sharing economy) establishments facilitated via online platforms. It offers clarity and essential information to both property owners and administrators, ensuring that they can navigate the taxation landscape with confidence and compliance.
Eurofast team keeps the finger on the latest amendments in the tax policy that can affect your business. To get more insights and guidance, feel free to contact our experts in Cyprus office at nicosia@eurofast.eu.
Marilena Georgiou
Junior Accountant
Eurofast Nicosia
nicosia@eurofast.eu