Taxation of Rental Income in Cyprus: Individual or Cypriot Company, Double Taxation and Reporting in Israel

1Does an Israeli who rents out an apartment in Cyprus pay tax in Cyprus?

Yes. Income from renting out property located in Cyprus is income sourced in Cyprus, and even someone who is not a Cyprus resident is liable to tax on it there. A non-resident is taxed in Cyprus only on certain types of income sourced in Cyprus, and rent is one of them. At the same time, as an Israeli resident you are taxed in Israel on your worldwide income, so the same income enters two tax systems, and all the planning is aimed at making sure you do not pay on it twice.

This article focuses on the stage after the purchase: what happens when the property is rented out. We presented the basic difference between a direct purchase and a purchase through a company in the legal guide to buying in Cyprus. Here we do the actual calculation, under the rules changed by the tax reform that took effect on 1 January 2026.

2How much tax does an individual pay on rental income in Cyprus in 2026?

An individual pays income tax on net rental income under the regular brackets, which were updated in the reform. As of October 2026, the first EUR 22,000 is exempt from tax.

Before the reform the exempt threshold stood at EUR 19,500. Taxable income is calculated after deductions, and here there are three important points:

• A notional 20% deduction. 20% is deducted from gross rent in place of actual repair and maintenance expenses, with no need for receipts.
• Interest. Interest on a loan used to purchase the property is deductible.
• Depreciation on the building. Depreciation deductions (capital allowances) on buildings are permitted.

Abolition of the Special Defence Contribution. Until 31 December 2025, rent was subject, in addition to income tax, to a Special Defence Contribution (Special Defence Contribution) at an effective rate of 2.25%. In any event it applied only to someone who was both a tax resident and domiciled in Cyprus, so most Israeli investors did not pay it. From 2026 it has been completely abolished on rent.

A 2026 novelty: payment of rent by traceable means. The reform provided that rent payments on property in Cyprus must be made by bank transfer, by card, by a recognized electronic payment method or by bank cheque. A lease under which the tenant pays in cash is no longer only a documentation problem, but also a compliance problem.

3Is it worth holding a rental property through a Cypriot company?

Since 1 January 2026 a Cypriot company has paid corporate tax of 15% (instead of 12.5% until the end of 2025) on rental profit after expenses, and the special levy on rent no longer applies to it. On paper this sounds cheaper than an individual's tax brackets, but that comparison is partial, because the money is in the company and not with you.

• Distribution of a dividend to an Israeli shareholder. Cyprus does not withhold tax on dividends to non-residents under local law, except for a new 5% deduction on dividends to companies in low-tax jurisdictions. In Israel the dividend is taxable as dividend income, and sometimes also subject to surtax.
• Abolition of the "deemed distribution". The Cypriot rule that required undistributed profits to be treated as if distributed was abolished for profits from 2026 onward, but continues to apply to profits of earlier years. In an established company, past profits must be tracked separately.
• Controlled foreign company and place of management. A company whose income is passive, such as rent, and which is controlled by Israeli residents, may fall within the "controlled foreign company" rules in the Income Tax Ordinance, under which undistributed profits may be treated as if distributed. In addition, if the control and management of the company are in practice exercised from Israel, it may be treated as an Israeli resident.
• Fixed costs. A company requires bookkeeping, audited accounts, filing of annual returns and real presence in Cyprus for the structure to hold.

Therefore, for a single rental property, a direct purchase is usually simpler and more transparent. A company is more suitable for an investor who holds several properties, plans to reinvest the profits in Cyprus, or develops projects. The decision should be made before the purchase, because transferring a property from an individual to a company later is a transaction in itself, with tax implications in both countries.

4Is there a tax treaty between Israel and Cyprus?

No. As of October 2026 there is no double taxation treaty between Israel and Cyprus. Cyprus does not appear in Israel's list of treaty countries, and Israel does not appear in Cyprus's list of treaties. Many investors assume there is a treaty because these are two neighboring countries with close business ties, and that is a mistaken assumption.

The practical meaning: there is no agreed allocation of taxing rights, no reduced withholding rates under a treaty, and no agreed mechanism for resolving questions of residency or a mutual agreement procedure between the tax authorities. Avoidance of double taxation relies on domestic law, mainly on the unilateral credit in Israel:

• Foreign tax credit in Israel. Israel gives its residents a credit for foreign tax paid on income from abroad even where there is no treaty. The credit is limited to the amount of the Israeli tax on the same income, and is calculated by "baskets of income". Excess foreign tax that was not used may be carried forward to the next five tax years.
• Credit in Cyprus. Cyprus gives its residents a similar unilateral credit, but this is relevant only to someone who has become a Cypriot tax resident.

5How do you report rental income from Cyprus in Israel?

An Israeli resident who has rental income abroad must file an annual return with the Tax Authority, and can choose between two tax routes.

The choice depends mainly on two questions: how much tax was paid in Cyprus, and how many expenses the property has. An example for illustration: an individual whose only income in Cyprus is this one, and whose taxable income there is lower than EUR 22,000, may pay 0% tax in Cyprus. In such a situation he has no foreign tax to credit under the regular route, and the 15% route may be cheaper than the marginal tax in Israel. By contrast, an investor with a large mortgage and significant expenses, or someone who paid significant tax in Cyprus, will usually come out ahead under the regular route with the credit. The calculation must be redone every year, with the accountant in Israel.

6What needs to be arranged in Cyprus in terms of reporting?

1. A tax identification number (TIN) in Cyprus and registration on the Tax Department's online system.
2. A written lease, with payment by bank transfer to an account in your name, as the reform requires.
3. Filing an annual tax return in Cyprus on the rental income, even if the tax comes out at zero because of the exempt bracket.
4. Checking National Health System (GHS) contributions. According to one professional review, a contribution of 2.65% applies to rental income regardless of residency; its application to non-residents should be checked.
5. For short-term rental: checking the classification of income, registration duties and VAT, before the first booking.
6. Keeping documents: invoices, confirmations of tax payment in Cyprus and transfer confirmations, which will also be used for the credit in Israel.

7What to do before signing, and how we accompany you

Before buying a rental property in Cyprus it is worth deciding three things: who will hold the property (an individual, spouses or a company), what type of rental is planned (long or short), and how you will report in Israel. We accompany the choice of holding structure before signing, draft leases that meet the new requirements, and coordinate between the accountant in Cyprus and the accountant in Israel, so that tax paid on one side is recognized on the other.

Read next · 8 min readLand Registry Transfer Fees and Stamp Duty in Cyprus: Calculation, Exemptions and DiscountsHow much Cyprus Land Registry transfer fees cost, when a 50% reduction or exemption applies, and what happened to stamp duty from January 2026, with examples.Read the guide

The information in this guide is general in nature and does not constitute legal or tax advice on any specific transaction. Every transaction is assessed on its own facts.