Cyprus: Short-Term Leasing Of Self-Service / Self Catered Accommodation

The spread and wide use of digital platforms promoting the short-term accommodation rentals of private properties around the world demonstrated the existence of a gap in the legislation of the Republic of Cyprus. The issues that arose in view of the gap in the legislation for the commercial exploitation of private properties for short leasing was addressed by the Government through the passing of the Law on the Regulation of the establishment and operation of Hotels and Tourist Accommodations in 2020 (Law 9(I)/2019), which amended the Law on the Regulation of the establishment and operation of Hotels and Tourist Accommodations in 2019 (Law 34(I)/1969). On that basis, a major innovation was the introduction of the notion of 'self-service' or 'self-catered' establishment, the meaning of which is expressly distinguished from the notion of 'hotels' and 'tourist accommodation', as well as the establishment of a Register designated to be used for the listing and licensing of the 'self-service' or 'self-catered' premises (the "Register of Self-Service (Sharing Economy) Establishments"), maintained and monitored by the Deputy ministry of Tourism. In particular, according to the Law 34(I)/2019, a 'self-service' or 'self-catered' establishment may constitute an individual tourist furnished villa or house or apartment, which is registered with the Register of Self-Service (Sharing Economy) Establishments.

In particular, a 'self-service' or 'self-catered' establishment distinguishes in that the only service provided is the provision of the premises on a short-term basis for accommodation purposes. On the other hand, 'hotels' (including main hotel buildings, complexes of small houses, traditional premises etc) and 'tourist establishments' constitute premises within which other services -beyond accommodation services- are provided as well (it is noted that criteria apply on the categorization of an establishment as a hotel or tourist establishment).

First and foremost, in order for an establishment to be eligible to be registered with the Register of Self-Service (Sharing Economy) Establishments for the purpose of being rented-out on a short-term basis, it must bear the features and fulfil the technical and operational standards for its classification in one of the following classes of premises:

• tourist furnished villas, being establishments that have -among others- independent and direct external access, privacy, autonomy of plot of land and construction, as well as a private garden (as designated).

• tourist furnished houses, being furnished houses in a raw or in a complex that have -among others- operational autonomy, private, common or external access and privacy.

• apartments, being individual units in a jointly-owned building which can property be occupied and exploited as a distinct and autonomous unit for residential purposes.

In any case, the areas, interior and exterior (including parking space are), of each such 'self-service' or 'self-catered' establishment must have been constructed in accordance to the respective planning and building permits as well as to the applicable laws and regulations, while the interior areas of each such establishment must consist of at least a living area (separate or not), sleeping area (may be unified with the living are in the case of studios), cooking area and a washroom (bath); in this respect, it is noted that the maximum accommodation capacity for each such house is 10 persons (in a 4/5 bedroom house) while any house a having more than 3 bedrooms, must have a second washroom (bath). Of course, the establishments, of any class, must be connected to the utilities and have all appropriate installations, including air-conditioning (cold – hot), water supplying (cold – hot), drainage and electrical installation. To this end, it goes without saying that the construction of the establishment must be permanent and all necessary planning and/or building permits, in accordance to the type and use of the premises, must have been obtained.

Provided that an establishment fulfils the operational and technical standards and specifications, as explained above, in order for such an establishment to be registered with the Register of Self-Service (Sharing Economy) Establishments, there is a series of prerequisites:

• the registered owner, the beneficiary, the owner of the unit or the (property) manager, as the case may be, be registered with the Tax Department for the purposes of Direct Taxation; to this end a declaration is made by the applicant at the time of filing of the application for the registration of a 'self-service' or 'self-catered' establishment with the Register of Self-Service (Sharing Economy) Establishments.

• the registered owner, the beneficiary, the owner of the unit or the (property) manager, as the case may be, be registered with the Tax Department for the purposes of Indirect Taxation – VAT, provided that there is an obligation for registration in accordance to the relevant Law on Value Added Tax of 2000 (Law 95(I)/2000); if registered for VAT purposes, this must be declared at the time of filing of the application for the registration of a 'self-service' or 'self-catered' establishment with the Register of Self-Service (Sharing Economy) Establishments.

• conclusion of insurance policy for the 'self-service' or 'self-catered' establishment, against any risk, fire and civil liability.

In light of the aforesaid and in an effort to facilitate the tracing of taxable commercial transactions and enhance transparency for tax purposes, the European Directive 2021/514 (amending Directive 2011/16/EU) on administrative cooperation in the field of taxation (DAC7) of 22 March 2021, has been introduced (the "EU Directive 2021/514"). The aim of the said EU Directive 2021/514 is to "impose a reporting obligation on (digital) platform operators [...] [who] are better placed to collect and verify the necessary information on all sellers operating on and making use of a specific digital platform", within the scope of which (obligation) digital platforms carrying out activity in the field of renting of immovable property also fall, either on a domestic or cross-border level. Thus, it follows that digital platforms operations 'offering' rental accommodation options to consumers are under an obligation to declare to the tax authorities the 'private providers' of such accommodations, irrespective of the obligation of any such 'private provider' (depending on the laws and regulations of his country of tax residence) to declare the income derived from businesses relating to the exploitation of, inter alia, 'self-service' or 'self-catered' establishments for short-term leasing.

As a concluding remark, it appears that the criteria and obligations introduced relating to the provision of 'self-service' or 'self-catered' accommodation services aim to secure that the standards of this alternative type of accommodation are of a satisfactory level, analogous to the standards of traditional types of accommodation, giving the consumers more options on choosing the accommodation type that better suites their requests and needs.

private properties for short leasing was addressed by the Government through the passing of the Law on the Regulation of the establishment and operation of Hotels and Tourist Accommodations in 2020 (Law 9(I)/2019), which amended the Law on the Regulation of the establishment and operation of Hotels and Tourist Accommodations in 2019 (Law 34(I)/1969). On that basis, a major innovation was the introduction of the notion of 'self-service' or 'self-catered' establishment, the meaning of which is expressly distinguished from the notion of 'hotels' and 'tourist accommodation', as well as the establishment of a Register designated to be used for the listing and licensing of the 'self-service' or 'self-catered' premises (the "Register of Self-Service (Sharing Economy) Establishments"), maintained and monitored by the Deputy ministry of Tourism. In particular, according to the Law 34(I)/2019, a 'self-service' or 'self-catered' establishment may constitute an individual tourist furnished villa or house or apartment, which is registered with the Register of Self-Service (Sharing Economy) Establishments.

In particular, a 'self-service' or 'self-catered' establishment distinguishes in that the only service provided is the provision of the premises on a short-term basis for accommodation purposes. On the other hand, 'hotels' (including main hotel buildings, complexes of small houses, traditional premises etc) and 'tourist establishments' constitute premises within which other services -beyond accommodation services- are provided as well (it is noted that criteria apply on the categorization of an establishment as a hotel or tourist establishment).

First and foremost, in order for an establishment to be eligible to be registered with the Register of Self-Service (Sharing Economy) Establishments for the purpose of being rented-out on a short-term basis, it must bear the features and fulfil the technical and operational standards for its classification in one of the following classes of premises:

• tourist furnished villas, being establishments that have -among others- independent and direct external access, privacy, autonomy of plot of land and construction, as well as a private garden (as designated).

• tourist furnished houses, being furnished houses in a raw or in a complex that have -among others- operational autonomy, private, common or external access and privacy.

• apartments, being individual units in a jointly-owned building which can property be occupied and exploited as a distinct and autonomous unit for residential purposes.

In any case, the areas, interior and exterior (including parking space are), of each such 'self-service' or 'self-catered' establishment must have been constructed in accordance to the respective planning and building permits as well as to the applicable laws and regulations, while the interior areas of each such establishment must consist of at least a living area (separate or not), sleeping area (may be unified with the living are in the case of studios), cooking area and a washroom (bath); in this respect, it is noted that the maximum accommodation capacity for each such house is 10 persons (in a 4/5 bedroom house) while any house a having more than 3 bedrooms, must have a second washroom (bath). Of course, the establishments, of any class, must be connected to the utilities and have all appropriate installations, including air-conditioning (cold – hot), water supplying (cold – hot), drainage and electrical installation. To this end, it goes without saying that the construction of the establishment must be permanent and all necessary planning and/or building permits, in accordance to the type and use of the premises, must have been obtained.

Provided that an establishment fulfils the operational and technical standards and specifications, as explained above, in order for such an establishment to be registered with the Register of Self-Service (Sharing Economy) Establishments, there is a series of prerequisites:

• the registered owner, the beneficiary, the owner of the unit or the (property) manager, as the case may be, be registered with the Tax Department for the purposes of Direct Taxation; to this end a declaration is made by the applicant at the time of filing of the application for the registration of a 'self-service' or 'self-catered' establishment with the Register of Self-Service (Sharing Economy) Establishments.

• the registered owner, the beneficiary, the owner of the unit or the (property) manager, as the case may be, be registered with the Tax Department for the purposes of Indirect Taxation – VAT, provided that there is an obligation for registration in accordance to the relevant Law on Value Added Tax of 2000 (Law 95(I)/2000); if registered for VAT purposes, this must be declared at the time of filing of the application for the registration of a 'self-service' or 'self-catered' establishment with the Register of Self-Service (Sharing Economy) Establishments.

• conclusion of insurance policy for the 'self-service' or 'self-catered' establishment, against any risk, fire and civil liability.

In light of the aforesaid and in an effort to facilitate the tracing of taxable commercial transactions and enhance transparency for tax purposes, the European Directive 2021/514 (amending Directive 2011/16/EU) on administrative cooperation in the field of taxation (DAC7) of 22 March 2021, has been introduced (the "EU Directive 2021/514"). The aim of the said EU Directive 2021/514 is to "impose a reporting obligation on (digital) platform operators [...] [who] are better placed to collect and verify the necessary information on all sellers operating on and making use of a specific digital platform", within the scope of which (obligation) digital platforms carrying out activity in the field of renting of immovable property also fall, either on a domestic or cross-border level. Thus, it follows that digital platforms operations 'offering' rental accommodation options to consumers are under an obligation to declare to the tax authorities the 'private providers' of such accommodations, irrespective of the obligation of any such 'private provider' (depending on the laws and regulations of his country of tax residence) to declare the income derived from businesses relating to the exploitation of, inter alia, 'self-service' or 'self-catered' establishments for short-term leasing.

As a concluding remark, it appears that the criteria and obligations introduced relating to the provision of 'self-service' or 'self-catered' accommodation services aim to secure that the standards of this alternative type of accommodation are of a satisfactory level, analogous to the standards of traditional types of accommodation, giving the consumers more options on choosing the accommodation type that better suites their requests and needs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.