Tax treatment of profits from online platforms: Airbnb or Booking
Platforms like Airbnb and Booking have revolutionised the way we think about travel and lodging in the current digital era. However, new tax issues that impact property owners accompany this change.
The revenue from these rental properties can be seen as coming from a business operation that is subject to income tax under the revenue Tax Law, per the Tax Circular. The following outlines the precise requirements for taxes.
Properties Under Consideration. The following is covered by the circular:
- The Deputy Ministry of Tourism maintains the self-service properties register, from which the income derived from is registered or should have been registered;
- the property’s owner is registered with the VAT authorities and levies 9% VAT on the rental income from the property (assuming the owner is required to register for VAT); and
- the property is frequently rented out for a brief period of time, generally to different people each time.
The revenue received by owners of these assets will be regarded as a profit from their businesses. This implies that instead of the SDC Law, they will be subject to the regular income tax laws.
Owners’ Taxation Structure:
The following three scenarios were provided by the Tax Circular in order to clarify the tax status of short-term rentals:
- The property’s owner uses it for short-term rentals that are advertised online or through other channels: The revenue Tax Law governs how the owner’s net revenue from this kind of rental transaction is taxed. Depending on whether the owner is a natural person or not, the income may be liable to General Healthcare System (GHS) payments but is not subject to Special Defence payments (SDC).
- The property’s owner has delegated administration to a property manager in order to use the space for short-term rentals advertised on websites or through other channels: The rules from Scenario (I) above are applicable. It is important to remember that, for income tax reasons, the property manager charge is deducted as an expense from the owner’s taxable income.
- Based on a short- or long-term rental agreement, the owner has given the property management exclusive rights in exchange for a predetermined rental fee: The taxable income for a natural person owner is equal to the total rental revenue less the 20% reduction. In the event that the owner is a legal entity, the taxable income is calculated as the gross rental revenue less specific costs incurred solely for the purpose of obtaining the rental income.
Furthermore, the gross rental revenue less 25% will be subject to SDC, which is due every six months in the event that the owner resides in Cyprus and is a tax resident in Cyprus. GHS payments are also required when the owner is a natural person.
Key Points for Property Owners
- Consider your present tax status again in light of the most recent advice.
- Make sure you apply the VAT rate correctly, be informed about your rights regarding VAT recovery, and comply with Cyprus’s VAT registration requirements.
Please contact us for any further information on the tax treatment of revenue from properties rented out via online platforms.
Shanda Consult Team!