The House of Representatives of Cyprus recently (Friday 22/05/2020) approved a highly anticipated legislative proposal amending the Income Tax Law (Law no.118(I)/2002) to provide for substantial tax incentives to landlords and property owners who accept to lower rent payments for their tenants.
In particular, landowners will be given a tax credit of 50% of the amount reduced, provided it is not below 30% and does not exceed 50% of the total rent payable and it is for a maximum of 3 months during 2020.
The rent reduction needs to be documented by a written agreement between the parties.
By a circular dated 03 June 2020, the Tax Department clarified that the tax credit will applied not only for reduction of rent payment but also for license fees.
Why this approach?
The issue of rent payments was debated at great lengths in Cyprus during the COVID-19, as many businesses were forced to remain closed during the lockdown.
Binding precedent on the interpretation of the Right to Freedom of Contract as provided by the Constitution of the Republic of Cyprus (following the ‘trapped buyers’ legal saga), prevented the Cyprus Parliament from legislating forced reductions in rent payments.
As such, another solution was needed to balance the interests of landlords and tenants and to ‘incentivise’ market forces towards reductions of rent.
This amendment to the Income Tax Law is certainly a welcomed incentive and the news of its introduction were welcomed by landlords and tenants alike.
In our view, this new law also provides a very valuable framework for negotiations between landlords and tenants. This could also operate as a starting point or an anchor for the re-negotiation of lease agreements.
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