The 2026 Tax Reform has officially overhauled how rental income is managed in Cyprus. Designed to increase transparency and reduce the administrative burden on property owners, these changes are the most significant since 2002.
1. Abolition of Special Defence Contribution (SDC)
The most welcome change for landlords is the complete removal of SDC on rental income as of January 1, 2026.
- The Old Rule: Landlords previously paid an effective rate of 2.25% (which was 3% on 75% of gross rent).
- The 2026 Rule: SDC is abolished. Rental income is now only subject to Personal Income Tax (at the new progressive rates) and GHS (GESY) at 2.65%.
- The Benefit: This simplifies tax returns and increases the net yield for thousands of property investors across the island.
2. The €500 Electronic Payment Mandate
Effective July 1, 2026, the government has introduced a “traceability” law for all rental transactions.
- The Rule: Monthly rent payments of €500 or more must be made exclusively via bank transfer, credit/debit card, or other electronic means.
- Cash Prohibition: Physical cash payments for high-value rentals are now illegal. This is aimed at curbing the “shadow economy” and ensuring all rental income is declared.
- Penalties: Non-compliance can result in administrative fines of up to €5,000 or legal action for tax evasion.
3. New Deductions for Primary Residence Rent
For the first time, tenants living in their primary residence can benefit from tax relief, provided they meet specific household income criteria.
| Household Type | Annual Income Limit | Max Rent/Interest Deduction |
| No Children | Up to €90,000 | €2,000 |
| 1-2 Children | Up to €100,000 | €2,000 |
| 3-4 Children | Up to €150,000 | €2,000 |
Note: This deduction applies to either rent paid or mortgage interest for a primary residence, but not both.
4. Natural Disaster Insurance Credit
In an effort to protect the national housing stock, the 2026 reform encourages property insurance.
- The Incentive: Landlords and homeowners can deduct up to €500 from their taxable income for insurance premiums paid against natural disasters (fire, earthquake, flood).
- Scope: This applies to any residence in Cyprus, whether it is your main home, a holiday home, or a property rented to a third party.
5. Compliance & Mandatory TIN
- Landlord TIN: All rental agreements must now include the Tax Identification Number (TIN) of the landlord to be legally valid for stamping.
- Mandatory Filing: Residents aged 25–71 must now file an annual tax return (TD1), even if their rental income falls below the tax-free threshold of €22,000.
📊 Comparison: Rental Tax 2025 vs. 2026
| Tax Type | 2025 Status | 2026 Status |
| SDC (Special Defence) | 2.25% (Effective) | 0% (Abolished) |
| GHS (GESY) | 2.65% | 2.65% |
| Stamp Duty | Required | Abolished |
| Cash Payments | Allowed | Restricted (>€500) |