As part of the 2026 Tax Reform, several legislative changes have been introduced that directly affect the taxation and payment of rentals in Cyprus. These changes impact both lessors earning rental income and lessees/tenants, particularly those renting property in the course of a business.
Awareness and timely action are essential to ensure compliance and to avoid unexpected tax consequences. Below we outline the key changes affecting rentals from 2026 onwards.
1. Mandatory payment of rentals via bank transfer or electronic means, effective from 01 July 2026;
The Collection and Assessment of Taxes Law has been amended to include Article 48A – Obligation of rental payment via bank account.
Under Article 48A(1), rental payments relating to immovable property in Cyprus may only be made using the following methods:
(a) bank transfer, or
(b) payment via debit or credit card or
(c) payment via any other acceptable electronic means of payment.
Article 48A(2) further provides that any person earning rental income must not accept rental payments through any other method.
The above changes are effective from 01st July 2026.
Lessors should inform their tenants well in advance and ensure that rental agreements and payment arrangements comply with the new requirements.
2. Abolition of Special Defence Contribution (SDC) on Rental Income
The Special Contribution for the Defence of the Republic Law has been amended so that rental income is no longer subject to SDC.
As a reminder, up to 2025, rental income was subject to SDC at 3% on the 75% of the gross rent. From 1 January 2026, the SDC on rents has been abolished.
It is noted that there have been no changes to the general health system contribution of 2.65% that applies to the rental income of individuals.
3. Income Tax Law – Rent Expense will not be deductible if payment not compliant
Article 9 of the Income Tax Law has been amended to include paragraph (1A)(iii) under which, payments of rental that are not in line with Article 48A of The Collection and Assessment of Taxes Law, will not be allowed as a tax deductible expense for income tax purposes.
This change is particularly relevant for businesses leasing property, as non-compliant payment methods may result in the loss of tax deductibility of rental expenses.
Lessees/tenants renting property for business purposes must ensure that rent is paid exclusively via the prescribed electronic methods to safeguard deductibility.
4. Abolition of Stamp Duty
With effect from 1 January 2026, the Stamp Duty Laws (1963–2025) have been abolished.
As a result, lease/tenancy agreements entered into in 2026 will not be subject to stamp duty.
In summary:
• Lessors should inform their tenants/lessees of the new payment method requirements effective from 01st July 2026
• Lessees/tenants renting property for business purposes should ensure compliance with the payment methods to safeguard the tax deductibility of the rent expense
• Lessees/tenants that are Companies should no longer withhold SDC for 2026 rentals
• Lessors who previously paid SDC via self-assessment (because they rented to individuals) should no longer pay SDC on their rental income
We, at KSA, remain at your disposal should you require any further information or assistance in relation to this matter.
