VAT on Property Rentals in Cyprus

The basic VAT position on property rentals

Cyprus VAT law distinguishes clearly between residential and commercial property rentals for VAT purposes. Residential lettings — renting a property to a tenant to use as their home — are exempt from VAT. This cannot be changed regardless of who the landlord is or whether the landlord is VAT registered. Commercial property lettings — renting offices, warehouses, retail units, industrial premises — are also exempt from VAT by default. However commercial landlords have the option to elect to charge VAT at 19% on commercial rental income. This election — the option to tax — is a significant decision with long-term consequences.

Residential rentals — always exempt

Long-term residential lettings in Cyprus are exempt from VAT regardless of the circumstances. A landlord letting a flat or house to a residential tenant does not charge VAT on the rent. There is no option to make residential lettings taxable — the exemption is mandatory. The consequence is that landlords of residential property cannot recover input VAT on costs related to the letting — maintenance, renovation, management fees, professional fees. This is a direct cost of the exempt status.

Commercial rentals — exempt by default, option to tax available

Commercial property lettings are exempt from VAT by default. A landlord letting offices or a warehouse to a business tenant does not charge VAT on the rent unless they have exercised the option to tax. The option to tax allows the landlord to treat the rental as a taxable supply at 19% — in return the landlord can recover input VAT on all property-related costs. Whether to opt to tax is a commercial and financial decision that depends primarily on the scale of the input VAT costs involved and the VAT status of the tenants.

Commercial property rental — opted vs unopted comparison

Holiday lets and short-term accommodation

Holiday lets and short-term accommodation — where the letting period is short and the service is more akin to hotel accommodation than a residential tenancy — are treated differently from long-term residential lettings. Short-term letting of furnished accommodation similar to a hotel service attracts the 9% reduced rate applicable to hotel and tourist accommodation. The distinction between an exempt residential letting and a 9% holiday letting depends on the nature of the arrangement — the level of services provided, the length of letting, whether it is marketed as holiday accommodation, and whether the landlord provides hotel-like services.

Factors indicating a holiday let is subject to 9% VAT

• Let for short periods — typically less than 3 months
• Marketed on holiday or short-term rental platforms — Airbnb, Booking.com
• Furnished and equipped for tourist use
• Cleaning, linen and other hotel-type services provided
• The owner or operator is in the business of providing holiday accommodation
• Multiple properties let on a commercial basis

Input VAT for commercial landlords

A commercial landlord who has opted to tax can recover input VAT on construction costs, refurbishment, maintenance, insurance, management fees and professional fees related to the opted property. A landlord who has not opted to tax — or who lets residentially — cannot recover any of this input VAT. For landlords with significant property costs the option to tax is often financially essential. For landlords whose tenants are exempt businesses the option to tax creates a 19% irrecoverable cost for tenants which can make the property less competitive in the market.