COVID-19: The Cyprus Parliament Voted To Extend The Tax Benefits For Landlord If Landlord Voluntarily Reduces The Rental Amount

In brief

On 11 March 2021 the Cyprus Parliament voted to extend the tax benefits available (under certain requirements) to landlords that voluntarily reduce the rental amount.

In detail

Income Tax Law

The Cyprus income tax law was amended by the addition of paragraph 2 of Article 9E that relates to tax credit available to landlords if the rental income from immovable property is reduced. The new paragraph provides that a person (i.e. company or individual) that earns rental income from immovable property will be eligible for a tax credit equal to 50% of the voluntary reduction of the monthly rental amount provided that the said reduction is not lower than 30% of the monthly rental amount.

The person (i.e. company or individual) will be eligible for the aforesaid tax credit provided also that:

1. The tax credit is for rental reduction that relates to the period between 1 January 2021 and 30 June 2021, but for a maximum of three months (irrespective of the number of months for which a rental reduction has been agreed);
2. No tax credit is allowed for any rental reduction that exceeds 50% of the monthly rental amount;
3. The reduction of the rental amount is granted under a written agreement between the landlord and the tenant;
4. The landlord and the tenant are not related persons (as defined under Article 33 of the Cyprus income tax law);
5. The tax credit can be utilised against the total income tax charge of the landlord for tax year 2021; and (vi) Any refundable tax that relates to the said tax credit does not exceed the amount of tax that has been already paid.

The tax credit applies to rental agreements for immovable property that houses businesses whose operation has been suspended by virtue of Government measures related to COVID-19 (the requirement for such suspension is the only material difference between this 2021 COVID-19 rental incentive and the corresponding 2020 COVID-19 rental incentive, as far as income tax is concerned).

This tax credit is effective as of 1 January 2021.

Special Defence Contribution Law

The Special Defence Contribution (SDC) Law was also amended to provide that the gross amount of rental income of landlords, that voluntarily reduced the rental amount of immovable property that houses businesses whose operation has been suspended by virtue of Government measures related to COVID-19, is exempted from SDC provided that:

• The exemption from SDC is for a maximum of three months, and for the period between 1 January 2021 and 30 June 2021 (irrespective of the number of months for which a rental reduction has been agreed);
• The reduction of the rental amount is not lower than 30% of the monthly rental amount on which the SDC applies;
• The reduction of the rental amount is granted under a written agreement between the landlord and the tenant; and
• The landlord and the tenant are not related persons (as defined under Article 33 of the Cyprus income tax law).

There was no SDC element to the 2020 COVID-19 rental incentive.

This tax exemption is effective as of 1 January 2021.

The takeaway

These tax benefits are part of the measures taken by the Cyprus Government towards supporting the Cyprus economy during the COVID-19 outbreak.