New legislative measures introduce greater transparency in the rental market and strengthen mechanisms against undeclared rental income

The Republic of Cyprus has introduced important changes to the regulation of rental payments, requiring all rent payments relating to immovable property located in Cyprus to be made through traceable electronic payment methods from 1 July 2026.

The new measure forms part of the wider tax reform framework introduced by the Cypriot authorities and aims to enhance transparency in the property rental market, improve tax compliance and address cases where rental income may not have been properly declared to the Tax Department.

The obligation applies to rental payments made in respect of properties located within the Republic of Cyprus and requires such payments to be carried out exclusively through recognised electronic payment methods, including bank transfers, debit cards, credit cards or other approved electronic payment solutions. Cash payments and other non-traceable forms of payment will no longer be permitted under the new framework.

The obligation applies not only to tenants making rental payments but also places a corresponding responsibility on landlords, who will no longer be permitted to accept rent payments through methods other than approved electronic channels. The purpose of the measure is to create a clear and verifiable record of rental transactions, ensuring greater accuracy in the declaration of rental income and reducing opportunities for tax evasion or avoidance.

The introduction of mandatory electronic rent payments is expected to have a significant impact on both residential and commercial rental arrangements. Landlords will need to review their existing rental practices and ensure that rental agreements and payment procedures comply with the new requirements. Tenants should also ensure that all rental payments are made through methods that provide an official electronic record of payment.

The new framework is also connected with broader tax reform measures applicable from the 2026 tax year. Under the revised tax system, taxpayers may benefit from certain deductions relating to housing expenses, including deductions associated with rent paid for a primary residence and interest paid on a performing housing loan for a primary residence, subject to the applicable conditions.

The revised income tax framework introduces changes to the applicable tax bands, with income between €22,001 and €32,000 taxed at 20%, income between €32,001 and €42,000 taxed at 25%, income between €42,001 and €72,000 taxed at 30%, and income exceeding €72,001 taxed at 35%. These changes will apply to the 2026 tax year and will be reflected in tax returns submitted in the following year.

Failure to comply with the new electronic payment requirement may result in penalties under the applicable tax legislation. Accordingly, both landlords and tenants should take appropriate steps to ensure that their rental arrangements comply with the new legal obligations before the effective date of the amendment.

The Tax Department is expected to issue further guidance and clarifications regarding the practical implementation of the new requirement, including specific procedures, interpretation of certain provisions and the treatment of particular circumstances that may arise in practice.

Until such additional guidance is published, parties involved in rental arrangements should carefully assess their individual circumstances. Where exceptional or complex situations exist, it is recommended that landlords or tenants submit a written request to the Tax Department seeking specific guidance, clarification or recommendations regarding the appropriate method of compliance.

Separately, the Tax Department has introduced changes concerning declarations relating to the non-application of VAT on property leases or rentals. Such declarations must now be submitted exclusively through the Tax For All (TFA) online taxpayer portal using Form T.F.1220 2026.

The relevant declaration must generally be submitted within thirty days from the date of signing the lease agreement. The application must be accompanied by supporting documentation, including a copy of the lease agreement, identification documents of the signatory and, where the applicant is a legal entity, a certificate of directors. Where the declaration concerns only part of a property, an appropriate description of the relevant part must also be provided.

These developments reflect the ongoing modernisation of Cyprus’s tax administration system and represent a significant step towards increasing transparency in the real estate sector. Landlords, tenants, investors and businesses involved in property leasing should carefully review the new requirements and seek appropriate legal advice to ensure full compliance with the updated regulatory framework.