Abolition of SDC on Rental Income

The Cyprus tax reform abolishes the application of Special Defence Contribution (SDC) on rental income with effect from 1 January 2026.

Under the previous framework, rental income in Cyprus could be subject to:

• Income Tax or Corporate Tax; and
• SDC.

As a result, rental income was effectively subject to a dual layer of taxation in certain cases.

The reform removes the SDC element from the taxation of rental income.

Previous Tax Treatment of Rental Income

Prior to the reform, rental income received by Cyprus tax resident individuals and companies was generally subject to:

• Income Tax or Corporate Tax; and
• SDC on a percentage of the gross rental income.

The previous framework created an additional tax burden on Cyprus rental income and increased the overall effective taxation of property investments.

The simultaneous application of Income Tax and SDC was often viewed as a form of double taxation on the same income stream.

Tax Treatment from 1 January 2026

As from 1 January 2026, rental income will no longer be subject to SDC.

Accordingly:

• individuals receiving rental income will generally remain subject only to Income Tax; while
• companies receiving rental income will generally remain subject only to Corporate Tax.

The reform therefore simplifies the taxation of rental income in Cyprus.

Practical Effect on Property Owners

The abolition of SDC on rental income is expected to reduce the effective tax burden for:

• Cyprus property investors,
• landlords,
• real estate holding structures, and
• companies holding immovable property.

The reform may therefore improve the overall attractiveness of Cyprus property investments and rental structures.

The practical benefit will depend on:

• the level of rental income,
• ownership structure,
• deductibility of expenses, and
• the applicable Income Tax or Corporate Tax position.

Contact Rightax

For further information or professional assistance regarding the Cyprus tax reform, international tax matters or Cyprus corporate structures, please contact the Rightax tax advisory team.

+357 99 108 510

[email protected]

The above information is provided for general guidance only. It does not constitute legal or tax advice. Always consult a qualified professional for advice tailored to your specific circumstances