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Direct Holding of Real Estate
This section discusses the most important tax implications of the direct holding of real estate.
It discusses the impact on resident individuals and non-resident individuals first, and then on resident companies and non-resident companies.
Personal income tax
Income derived from real estate, such as rental income, is subject to personal income tax up to 35%, Special Defence Contribution (if the resident individual is also domiciled in Cyprus) at a rate of 3% on 75% of rental income, and contributions to the General Health System at a rate of 2.65%.
Deductibility of costs, interest, and depreciation
A 20% discount on gross rental income, capital allowance costs, interest costs, and maintenance costs are deductible from rental income. Capital allowances are prescribed at fixed rates of depreciation: 3% straight-line for commercial buildings and 4% straight-line for industrial buildings. Land is excluded.
Repairs and renovations on private residences
Private residence repairs and renovations are subject to a reduced 5% VAT rate, which applies to all residences that necessarily need to be repaired or renovated.
There is, however, a condition that a period of 3 years has lapsed from the first day the residence was used. In cases where the value of the materials intended to be used in the renovation and repair works exceeds by more than 50% the value of the services, then the value of these materials is subject to the standard VAT rate.
As of 20 August 2020, it also applies to such services provided for the purposes of making additions to private residences.
Losses – carry back/forward
There is no possibility for carryback/forward.
Non-resident individuals are treated in the same way as resident individuals.
Corporate income tax
Business income, such as rental income, is subject to corporate income tax. Profits are taxed at the 15% corporate income tax rate.
Deductibility of costs, interest and depreciation
Capital allowances are granted, and interest paid on the acquisition of the rented property is also allowed.
A company can deduct all expenses attributed to the generation of the rental income to the extent that such expenses are related to the rental income (i.e. repairs and maintenance).
Anti-tax avoidance directive
The Anti-Tax Avoidance Directive (ATAD) is a directive published by the OECD that will be implemented by European countries.
Cyprus also incorporated the Directive in its domestic legislation. It has already implemented interest limitation rules for loans from low-tax jurisdictions. In 2020, Cyprus enacted the Exit Taxation rules and Hybrid Mismatch Rules as part of the Country’s harmonisation with the OECD’s Anti-Tax Avoidance Directive.
Losses – carry back/forward
Losses that cannot be set off against other income in a tax year are carried forward and set off against tax-adjusted profits for the next 7 years. Losses cannot be carried back.
The loss of one company can be set off against the profits of another company, provided the two companies are Cyprus tax residents of a “tax group”.
For the purposes of group relief, a company must first offset any taxable income against its own brought forward losses, before it can utilise any losses of other companies belonging to the same group.
A group is formed if:
- A Cyprus tax resident company directly or indirectly holds at least 75% of the voting rights of another Cyprus tax resident company, or
- Both companies are at least 75% owned by a third company
As of 1 January 2015, the interposition of a non-Cyprus tax-resident company will not affect its eligibility for group relief if it remains tax resident in either an EU state or a country with which Cyprus maintains a tax treaty or a bilateral or multilateral agreement for information exchange.
Non-resident companies are taxed on their Cyprus-source income only.
Rental income received in Cyprus for a non-resident company is computed in the same way as for resident companies. It is also taxed at the same rate of corporation tax as the income of the resident companies, i.e. 15%.
Indirect Holding of Real Estate
This paragraph discusses the most important tax implications of the indirect (shares) holding of real estate.
It discusses the impact on resident individuals and non-resident individuals first, and then on resident companies and non-resident companies.
Personal income tax
Individuals who hold shares in a Cyprus company may receive dividend income. Dividend income is not taxable for personal income tax.
Special Defence Contribution
Dividends are subject to Special Defence Contribution at 5% for individuals who are also domiciled in Cyprus (as from 1 January 2026).
Personal income tax
No personal income tax applies to non-resident individuals. The dividend income is not taxable in Cyprus.
Special Defence Contribution
The Special Defence Contribution applies only to taxpayers who are both tax residents and domiciled in Cyprus. A non-resident individual is thus not subject to the Special Defence Contribution.
Corporate income tax
As well as resident individuals, dividend income for resident companies is not subject to corporate income tax.
Special Defence Contribution
The actual dividend income received from another Cyprus tax resident company is not subject to the Special Defence Contribution.
The same applies in case dividend income is received from a non-resident company. However, if the dividend falls under the non-exemption rule, the Special Defence Contribution applies.
The non-exemption rule is as follows.
Exemption from Special Defence Contribution does not apply if:
- The paying company, engages directly or indirectly in more than 50% in activities that lead to investment income, and
- The foreign tax burden is significantly lower than that of Cyprus. Significantly lower means an effective tax rate lower than 6.25% on the profit distributed
Anti-tax avoidance directive
The Anti-Tax Avoidance Directive (ATAD) is a Directive published by the OECD that European countries have implemented. Cyprus also incorporated the Directive in its domestic legislation. Cyprus has already implemented interest limitation rules for loans from low tax jurisdictions. In 2020, Cyprus enacted the Exit Taxation rules and Hybrid Mismatch Rules as part of the Country’s harmonisation with the OECD’s Anti-Tax Avoidance Directive.
Non-resident companies are taxed only on their Cyprus-source income. As well as resident companies, the dividend income is generally not taxable for corporate tax purposes.
However, with effect from 1 January 2026, Special Defence Contribution applies on dividends paid to related companies in Blacklisted Jurisdictions (BLJ) and Low Tax Jurisdictions (LTJ). The SDC rate on in-scope dividends paid to related companies in each case is:
- BLJ remains at 17% tax on the gross dividends, and
- LTJ is reduced from 17% on the gross dividend to 5%.
