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Purchasing Real Estate in Cyprus: Taxes

GENERAL

Cyprus is a popular destination for foreigners looking to buy real property. Many factors contribute to the island’s appeal, including the high level of life, the welcoming and secure atmosphere, the excellent quality of real estate projects, a very favorable tax and business climate, and the island’s strategic location at the crossroads of three continents.
Foreigners interested in purchasing property in Cyprus can choose from a variety of residential and commercial properties.

FRAMEWORK FOR LAW

Immovable property transactions are governed by a number of laws in Cyprus, most of which are similar to those in the United Kingdom. Foreigners who purchase property in Cyprus enjoy the same rights as locals and can be confident in their property rights and ownership.

EUROPEAN ACQUISITION OF CYPRUS PROPERTY

Since Cyprus’s EU membership, European nationals, as well as companies whose owners are European nationals, have been free to purchase any sort of property in Cyprus.

NON-EUROPIAN ACQUISITION OF CYPRUS PROPERTY

Non-Europeans who want to buy property in Cyprus can do so without restriction. However, they must first acquire approval from the local District Office before converting the title deed to their name.

They’re also only allowed to get one of the following:

  • apartment
  • house
  • a building plot or a piece of land with a maximum size of two donums (2,676 square metres)

This license is available if the property is not being used for commercial purposes. However, in some situations, the Council of Ministers may approve the acquisition of property for commercial purposes if the initiative is deemed to benefit the Cyprus economy as a whole (e.g. in terms of tourism or employment).
Non-European companies may also acquire premises for their activities (of any size) and for the living of their foreign employees, as long as they maintain a fully functional office and the residence is registered in the employee’s name.

THE DISTRICT OFFICE APPLICATION

Certain documentation are necessary for the application to the Local District Office, and the letter of permission or refusal could take up to six months. In the meantime, there are no restrictions on taking ownership of the property.

The acquisition of immovable property by a foreigner is only permitted if:

  1. The house will only be utilized for personal purposes, and the building plot or land will not be larger than 2,676 square meters.
  2. It’s employed in professional and commercial situations.
  3. It is utilized in manufacturing in sectors where it is believed that it will assist the Cyprus economy, as well as in the creation of items involving the application of new technologies or technical knowledge.

The following requirements and restrictions apply to the permit:

  1. The transfer must be completed within a year of the date of the permission, or within three years if a building is being constructed on the property.
  2. It is necessary to pay all taxes.
  3. The permit is only valid for the property in question and its intended use.

REGULATIONS ON EXCHANGE CONTROL

If the property is sold in the future, the entire sale proceeds can be exported from Cyprus (after all tax requirements have been paid) and no exchange controls will apply.

TAXES AND FEES APPLICABLE TO IMMOVABLE PROPERTY IN CYPRUS

The following are the primary taxes that apply to the purchase, ownership, and sale of immovable property in Cyprus. Both natural individuals and entities are subject to the aforementioned taxes.

A. Taxes imposed on the purchase and sale of real estate

Fees for Transfers

After the property is registered with the Land Registry Office, the buyer must pay Transfer Fees based on the value of the property as determined by the Land Registry Office.

Transfer Fees are reduced or waived.

Transfers of immovable property that occur between December 2, 2011, and December 31, 2016, are exempt from immovable property Transfer Fees if the transfer is part of a VAT-registered transaction. In circumstances when the transaction is not subject to VAT, the statute allows for a 50% reduction in transfer fees.

VAT stands for Value Added Tax (VAT)

The regular VAT rate of 19 percent applies to newly constructed structures (and the related land). Land transfers and the sale of used buildings are exempt from VAT.

The VAT rate has been reduced to 5%

On the purchase or building of a house or apartment to be used as a private main residence, a reduced VAT rate of 5% is applied, providing the property’s area does not exceed 200 sq.m (the reduced rate of 5 percent also applies on the first 200 sq.m. if the total area of the property does not exceed 275 sq.m.).

The reduced rate also applies to properties purchased by individuals who do not normally reside in Cyprus but do so for the purpose of relocating to Cyprus.

Tax on Capital Gains (CGT)

Gains deriving from the disposal of immovable property located in Cyprus, including gains from the sale of shares in a business that holds immovable property located in Cyprus, are subject to capital gains tax, which is applied at a rate of 20% on companies and individuals (excluding shares listed on any recognised stock exchange). The net profit is calculated by subtracting the sale price from the larger of the cost or market value on January 1, 1980, as adjusted for indexation and after deducting specified expenditures.

The foregoing exemptions are granted just once and not on a per-disposition basis. If an individual claims a combination of the foregoing, the maximum amount is €85.430.

CGT exemption: If certain conditions are met, the profit on the sale of a Cyprus property acquired between 17 July 2015 and 31 December 2016 is exempt from CGT.

B. Taxes paid while the property is owned

Tax on Immovable Property (“IPT”)

IPT is a tax levied on the market value of immovable property based on determined values as of January 1, 1980, and it applies to the total value of immovable properties in Cyprus possessed by the owner on January 1 of each year. This tax is due on the 30th of September each year, and non-compliance will result in interest and penalties.

C. Other taxes and charges

There is no wealth tax in Cyprus, nor are there any succession taxes such as inheritance tax.

RENTAL INCOME TAXATION

Rental income obtained by a non-Cyprus tax resident person (business or individual) from immovable property located in Cyprus is liable to Income Tax as follows:

Individual: After a 20% exemption and certain permissible deductions, gross rental income derived from Cyprus properties is pooled with all other Cyprus taxable incomes (if any) and taxed according to the Cyprus personal income tax progressive band rates.

Company: Gross rental revenue earned from Cyprus properties is pooled with all other taxable incomes (if any) from Cyprus, and the resulting profit is taxed at a flat rate of 12,5% after deduction of tax permitted expenses.

NOTE: There is an additional tax on rental income for Cyprus tax resident firms and individuals (who are also domiciled), known as the Special Defence Contribution tax, which is applied at a rate of 3% on the gross amount of rental revenue after providing for a 25% exemption.

LOAN FINANCING

A number of banks provide mortgages in connection with the purchase of real property. The amount that can be financed is determined by each investor’s financial situation and may vary based on the type of property. Every commercial bank has its own set of rules.

NON-EUROPEAN IMMIGRATION PROGRAMS

Non-Europeans can travel or live in Cyprus without needing a visa under two primary programs. The following are the:

  • Regulation 6 of the Permanent Residence Permit (PRP) (2)
  • Naturalization is the process of becoming a citizen of (Cypriot Citizenship)

Purchasing a property in Cyprus with a value of at least €300,000 in the case of PRP and at least €500,000 in the case of this sort of Naturalisation is one of the requirements for each of these programs.

Cyprus has recently improved and relaxed the standards and procedures for these two types of programs, making it easier and faster for non-Europeans to receive them if they match certain criteria.

RECOMMENDATIONS AND GENERAL GUIDELINES

  • To get assistance from skilled and reputable real property specialists
  • to seek legal guidance from a local attorney
  • Check for zoning limitations, building rules, road access, water supply, power, and telephone lines to ensure that the land is appropriate for construction.
  • To see if the seller has a legitimate title to the property and that there are no encumbrances that could prevent the transfer of ownership from going smoothly.
  • When buying an apartment or a house, make sure the seller has obtained the necessary building and other permissions and that the property can be given for freehold possession.
  • If the District Office rejects the application, a provision should be incorporated in the Sale and Purchase Contract that the money already paid shall be reimbursed.
  • The Land Registry Office should receive a copy of the contract of sale.
  • When purchasing a property, it is critical to inquire about the developer’s reputation and dependability.