Tax Incentives for Rent Reductions during 2020
On 2 June 2020, the Cypriot Income Tax Law was amended providing a tax credit to landlords (individuals or companies) so as to voluntarily reduce the rent charged to tenants. The tax credit is equal to 50% of the rent reduction voluntarily agreed and implemented between the landlord and the tenant in writing and applies only to the tax year 2020. The tax credit applies to rent, leases, and the provision of office space.
As an example a physical person (landlord) is the owner of an office that is rented to X Ltd (tenant) for EUR2,000 per month. The landlord and the tenant agreed to reduce the rents for 3 months by 50% (EUR1,000 x 3 = EUR3,000). The tax credit, in this case, is 50% x EUR3,000 = EUR1,500. Assuming the final total tax to be paid by the landlord on his income is EUR1,800 the landlord will get a tax credit of EUR1,500 resulting in a final tax of EUR300, being EUR1,800 less the tax credit of EUR1,500 = EUR300.
The tax credit shall apply provided the following conditions are met:
- the monthly rent reduction is not lower than 30% or higher than 50% of the monthly rent;
- the rent reduction applies for a period that does not exceed 3 months and falls within the tax year 2020, irrespective of the agreed months of such reduction;
- a written agreement between the landlord and the tenant is in place which governs the terms of the rent reduction;
- the landlord and the tenant are not related parties as per the definition of the term in Article 33 of the Income Tax Law.
- any tax refund that may arise as a result of the tax credit cannot exceed the amount of tax already paid via deduction or self-assessment.
- the tax credit reduces the amount of the final tax in relation to income tax only and does not affect any special defence contributions or GHS payments.
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