Tax treatment of income from renting out via online platforms or otherwise, of self-service resorts.

In today’s digital age, platforms like Airbnb and Booking have transformed the way we think about travel and accommodation. But with this evolution comes new tax implications that affect the property owners. The Cyprus Tax Authorities have recently shed light on this with Circular 10/2023.

A Deeper Dive into the Circular

Issued on 13 September 2023, the circular clarifies how income from properties rented out on digital platforms should be treated tax-wise. The document specifically touches on several tax fronts:

• Income Tax;
• Corporate Tax;
• Special Contribution for Defence (SDC);
• National Health System (NHS).

Properties in the Spotlight

For clarity, the circular covers the following:

1. The property from which the income is deriving from is registered or should have been registered with the self-service resorts register, as this is kept by the Deputy Ministry of Tourism; and
2. The owner of the property is registered with the VAT authorities and charges 9% VAT on the rental income from the property (provided that the owner has the obligation to register for VAT); and
3. The property is rented out on a short-term basis, repeatedly and as a principle, is rented out to different persons each time.

Owners of such properties will see their income treated as profit from business activities. This means they’ll be governed by the standard income tax provisions rather than the SDC Law.

How Owners Are Taxed: The Three Scenarios

The circular breaks down the taxation method based on three scenarios:

1. Direct Management by Owners: Where property owners, whether individuals or legal entities, directly manage their property for short-term rentals via online platforms.
2. Delegated Management: Here, owners entrust the property’s management to a third-party administrator for short-term online renting.
3. Administrator-Tenant Model: Property owners lease their properties to an administrator-tenant. This party handles maintenance and uses the property for short-term or long-term rentals based on a pre-decided rental agreement.

Each scenario has its distinct tax implications, all detailed within the circular.

Key Takeaways for Property Owners

If you’re generating income from digital platform rentals, it’s essential to:

• Re-evaluate your current tax situation in line with the latest guidance.
• Ensure compliance with Cyprus’s VAT registration requirements, accurately apply the VAT rate, and understand your rights regarding VAT recovery.

For more information on the tax treatment of income deriving from properties offered for rent through online platforms, e.g., Airbnb, Booking and/ or other webpages, please contact Charles Savva at [email protected] or [email protected].  Our team is well positioned to assist on all tax matters.