Is VAT applicable on Cyprus Real Estate?

For those buildings for which an application for a town planning permit was submitted prior to the 1.5.2004 no VAT is charged in the event of a sale. For those after the above date, a VAT of 15% is charged (no VAT is charged on land/building plots for purchase prior to 1.1.2008).

In case of a house purchase which is classed as the main/permanent resident of the purchaser, and provided that it is not larger than 250m2, the VAT is refunded up to 10% (out of the 15%). This means that the VAT must be fully paid and then the authorities will require proof that the applicant is using the property as his main/permanent residence (with the production of water/EAC/CYTA bills, payment of taxes etc..).

What property can a non-Cypriot purchase?

Buying property in Cyprus is quite easy. As a non-Cypriot you are entitled to purchase FREEHOLD for your personal use:

1. An apartment or a house.
2. A villa on a building site not exceeding 4.000m2.
3. A piece of land not exceeding 4000m2 for the purpose of erecting a house within a reasonable time period.
4. Offshore business units can buy/built unlimited office/work space.
5. A second home maybe permitted depending on the type. (ie: a holiday home in addition to a permanent home in the city).
6. Acquisition of leases having a term in excess of 33 years duration, are treated similarly in Real Estate as a freehold in relation to the limitations.
7. Acquisition in shares other than between husband and wife is not permitted.

Do properties have title deeds?

Properties have title deeds. Title deeds are issued by the land registry department, of the Cyprus Government, a few years after completion of the project. Individual houses follow the same procedure. Upon approval by the Council of Ministers of the application and confirmation by the Central Bank that the purchase was with foreign funds, then the transfer of deeds can take place within a few hours.

Can a loan be obtained locally?

All the main banks in Cyprus offer loans for the purchase of property in foreign currency. If you acquire through a Developer he usually has prearranged loan facilities, which can be explained to you when interest is shown for the purchase of property.

Normally a deposit of 30% can facilitate a loan on the balance of 70%.

Interest rates vary but as a guideline you can expect, the base rate libor +2.0%. Repayment period can be up to 15 years or more.

What is required for the transfer of property and what are the fees payable?

The following documents are required to be submitted in order for the property to be transferred to your name as a purchaser.

1. Written confirmation by the Central Bank that the purchase was with foreign funds, which was imported into Cyprus.
2. The sale contract.
3. The Ministerial Council’s permission for the property.
4. The property title deeds, if available.
5. Confirmation that all taxes for the purchased property (sewerage, immovable property, town taxes etc..) have been paid.

Transfer fees are paid on the value that the Land Registry department determines that it is the Open Market Value of the property on the day of the original transaction / sales contract.

Transfer rates are as follows:

Property Value      Fees %     Transfer fee £

Up to 50,000            3%             £1500
50,000-100,000        5%             £4000
100,000 and over     8%             £4000

A power of Attorney can be issued to a third party to attend and conclude the transfer on the buyer’s behalf. There is a transfer fee advantage if the property is registered in the name of the two spouses (husband + wife) as the total purchase price is divided by two, thus lowering the rate of the transfer fee.

Do I need to employ a solicitor?

Although we recommend seeing a solicitor, you may find that is not necessarily required. If you buy through a reputable developer there are printed ready contracts. Should you wish to use a solicitor to check the contract and examine the property’s date, any impediments etc… an average solicitor fee is £500-£1000. In my case 90% of villas under construction, the title deeds are almost available.

Do I need a valuation/survey?

We suggest that you get a survey and valuation report especially for resales and for units of some age. The cost of a valuation report is, on average, £150, plus approximately £200 for a structural survey.

For people who have purchased property, is a residential permit easily available?

Temporary Permit: The requirements for this permit is the production of a sales agreement and a Cypriot Bank Account. The residential permit can be from 1 year to 4 years. (Non EU Citizens only)

Permanent Permit: In addition to the above the applicant must establish proof of an annual income of CY£12,000 per annum for a couple.

Since April 2004, Cyprus is a member of the EU, the procedural restrictions on the property purchased on EU members are lifted. All restrictions on property on EU members will be lifted after April 2009. However as from April 2004 EU citizens do not require either a residential or a working permit.

1 ACQUISITION OF IMMOVABLE PROPERTY IN CYPRUS

Cypriots & E.U citizens living in Cyprus
Under Cyprus Law, Cypriots or persons of Cypriot origin as well as E.U citizens
who have their permanent residence in Cyprus are allowed to acquire any property without any restrictions.

The residential status is ascertained by the District offices and is obtained when
a person resides in Cyprus for a total period of 185 days per year or more.

E.U citizens not permanently living in Cyprus & Non E.U citizens
E.U citizens who are not permanent residents of Cyprus and non E.U residents, wishing to purchase immovable property in Cyprus are obliged to adhere to special formalities and are restricted by certain regulations.

A restriction to the type and size of the property is applied. EU citizens not permanently living in Cyprus and non EU citizens are given permission to buy only one apartment or one house or a building plot or land. In the case of EU citizens the property size can be unlimited and in the case of non E.U citizens it can be up to 4,014 square meters (the equivalent of three donums)

The restriction applied for E.U citizens not residing in Cyprus will seize after 2009 and all citizens of the E.U will be treated as equal to Cypriot citizens, regardless of their residential status.

After the permission has been obtained (see point 3 below) and the property has been registered in the name of the purchaser, there are no other restrictions for foreigners who are the owners of immovable property in Cyprus. The foreigner owner of immovable property can sell it and buy another and as any bona fide repeat purchaser will be granted a subsequent permit.

TABLE 1
EU citizens NOT permanently living in Cyprus

E.U citizens who are not permanent residents of Cyprus are only given permission to acquire the following:

One apartment, or

One house, or

Unlimited building plot or land

The restriction applied for E.U citizens not residing in Cyprus will seize after 2009 and all citizens of the E.U will be treated equally with Cypriot citizens regardless of their residential status.

TABLE 2
Non EU citizens

All non E.U citizens are only given permission to acquire one of the following:

One apartment, or

One house, or

A building plot or land up to 4,014 square meters (the equivalent of three donums)

2 MAKING AN OFFER

Buying a property in Cyprus is very similar to buying property in the UK. You make an offer and if it is accepted, it is normal to give a nominal deposit (between CYP 1,000 and CYP 2,000) to reserve the property, bind the owner, have the property taken off the market and secure it at the day’s price. This in Cyprus, unlike the UK, is legally binding and so “guzumping” does not exist. Contracts are consequently drawn up and this process takes only a few days. Upon signing of the contract, the buyer must pay at least 20%-30% of the value of the property. The remaining sum is paid according to the terms agreed with the seller which usually include periodic installments until delivery.

3 APPROVAL BY THE COUNCIL OF MINISTERS

According to Cyprus Law, foreigners must obtain the permission of the Council of Ministers prior to the acquisition of real estate property. Recently these powers have been assigned to the pertinent Authorities of every district, in order for the procedure to become speedier.

A foreigner – the law uses the term “alien” – is any person who is not a citizen of the Republic, including an alien controlled company. The term does not include foreigners of Cypriot origin or non Cypriot spouses of citizens of the republic.

ACQUISITION OF REAL ESTATE PROPERTY IN CYPRUS INCLUDES:

Transfer of title deed

Long lease for periods of more than 33 years

The acquisition of shares in a company that owns immovable property, if such acquisition results in the company becoming controlled by foreigners.

The establishment of a trust or any type of set – up, which is connected with the ownership of real estate, for the benefit of a foreigner, including tax benefits.

Although the proceedings for the obtaining of the permission might need a considerable amount of time to be fulfilled, purchasers are entitled to occupy their properties until then.
Furthermore, any contract for the purchase or lease of property is valid even if the Pertinent Authority rejects the foreigner’s request for permit. As such, when purchasing a property, it is advisable for the relevant contract to include provisions for such an event so as to secure a refund of any money paid or any other remedy.
The application to the Pertinent Authority requires information about the personal details and financial standing of the applicant and particulars of the property and its present owner. Also it must be accompanied by a number of legal documents.

AS A GENERAL RULE, PERMISSION IS GRANTED TO BONA FIDE APPLICANTS PROVIDED THEY HAVE:

No criminal record in their country or in Cyprus
The financial means to support them selves in Cyprus. (An income of CYP 12.000 per annum between the couple is considered satisfactory).

As of 1 May, 2004, citizens of the E.U residing in Cyprus or Cyprus based companies controlled by citizens of a Member State are not considered to be foreigners. As for citizens of the EU not residing in Cyprus, there is a transitional period until May, 2009, after which, they will be treated as equal to Cypriot citizens, regardless of their residential status.

4 SPECIFIC PERFORMANCE – SAFEGUARD FOR THE BUYER

Specific Performance Law safeguards a purchaser of immovable property from a transaction between a seller and a purchaser, especially when the purchaser is not allowed to immediately transfer the acquired property onto his/her name even though payment of the consideration has been effected.

According to the provisions of Specific Performance Law, the purchaser of immovable property may secure the transfer of the acquired property onto his/her name by depositing a duly signed and stamped copy of the contract at the Land Registry, within two (2) months from the signing of the contract.

By depositing the contract in the Land Registry, the purchaser prevents the owner from transferring the property elsewhere or changing it, for as long as the contract is valid and legally effective. No burdens, charges or encumbrances can affect the right of specific performance after the contract has been deposited with the Land Registry.

Depositing a copy of the contract to the Land Registry gives the purchaser the right to seek “specific performance” of the terms and conditions of the contract and thus to register the property onto the purchaser’s name, even though the owner may not be willing to accommodate such procedures.

5 FEES, CHARGES AND PROPERTY TAXES

TRANSFER FEES

The transfer of immovable property into a purchaser’s name can be effected once permission to acquire the property has been granted from the Council of Ministers/Pertinent Authority (where that is necessary – see point 3 above). When registering the property under his/her name at the District Land Office, the purchaser will be liable to pay the following transfer fees, calculated according to the property’s market value at the time of signing of the contracts:

Market Value of Property (CYP £) Transfer Free Rate %
Up to £50.000 3.0
From £50.000 - £100.000 5.0
Over £100.000 8.0

EXAMPLE 1

On the transfer of a property at the Land Registry Office, which was purchased for CYP 110.000, a purchaser will pay CYP 4.800 in transfer fees.

First £50.000 taxed @ 3% = £1.500
Next £50.000 taxed @ 5% = £2.500
And £10.000 taxed @ 8% = £800
£110.000 £4.800

EXAMPLE 2

If the property is bought are registered in the names of two individuals (i.e. husband and wife), then the market value of the property is divided in two parts resulting in reduced transfer fees.

On the transfer of a property at the Land Registry office, which as purchased for CYP 110.000, and will be transferred in the name of two individuals, the purchases will pay CYP 3500 in transfer fees:

First £100.000 taxed @ 3% = £3.000 (50.000 for each purchaser)
Next £10.000 taxed @ taxed @ 5% = £500
(5.000 for each purchaser)
£110.000 £3.500

STAMP DUTY

Unless otherwise stipulated in the contract, the purchaser is liable for the payment of stamp duty at the rate of 0.15% of the value of the property up to CYP 100.000 and 0.20% for over CYP 100.000.

EXAMPLE:
The stamp duty on a contract to CYP 110.000 will be CYP 170 (CYP 150 for the first CYP 100.000 @ 0.15% and CYP 20 for the remaining CYP 10.000 @ 0.20%).

The contract should be stamped within a period of thirty (30) days from signing. Although the absence of the revenue stamp bust be paid before depositing the contract to the Land Registry for specific Performance purposes (see point 4 above). The stamp duty plus a fine will be payable when the document is produced to the Land Office for the transfer of ownership of property, to any Government department or to the court. In order to avoid the payment of a fine, which could be substantial, the documents should be stamped within 30 days of their signing.

MORTGAGE FEES

The registration fee of a mortgage is one 1 per cent (1%) of the amount secured, plus the relevant stamps.

IMMOVABLE PROPERTY TAX

The registered owner of a property is liable to an annual immovable property tax calculated on the market value of the property as on 1st January, 1980.
___________________________________
Value of property in CYP £
0-100.000
100.001 – 250.000
250.001 – 500.000
Over 500.000
___________________________________

Annual Tax
0
0.25%
0.35%
0.40%

IMMOVABLE PROPERTY (TOWNS) TAX

The registered owner of immovable property is also subject to minor taxation under other laws, such as municipal or village regulations. These taxes are calculated according to the area and the size of the property and cover sewerage, refuse collection, street lights. The charges range in total from CYP 50 to CYP 100 per annum.

CAPITAL GAINS TAX

Capital Gains tax is levied at the rate of 20% on gains arising from the disposal of immoveable property or the disposal of shares of companies the assets of which consist mainly on immovable property.

As a general rule, the gain is calculated as the difference between the sales proceeds and the original cost of the property. Interest on payments paid for the acquisition, additions to the property and inflation rate, as published yearly by the Government, are deducted form fees.
Capital gains tax as a whole has minimal effect, since the appreciation of values, coupled with the following allowances and inflation, tend to leave little excess.

Individuals are entitled to the following lifetime allowances on Capital Gains Tax:

• The first CYP £10.000 of gains arising from the disposal of any property are exempted.
• The first CYP £15.000 of gains arising from the disposal of agricultural land by the farmer are exempted (subject to certain conditions).
• The first CYP £50.000 of gains arising from the disposal of a house used by the owner for his/her own habitation are exempted (subject to certain conditions).

The above allowances are not available separately and individual claiming a combination of the above allowances in only allowed a maximum lifetime allowance of CYP £50.000.

Cyprus residents are companies registered in Cyprus are subject to Capital Gains Tax when disposing their property, wherever it is, in Cyprus or overseas. However, under certain conditions, Capital Gains Tax can be reduced significantly if the purchase of the immovable property is affected through a Cyprus registered company.

The following categories of immovable property disposals are exempted from the Capital Gains Tax:

1. Transfers by reason of death

2. Gifts between relatives up to third degree of kindred

3. Gifts to limited liability companies when, at the time of transfer and for a period of five years following the transfer, all the shareholders of the company are members of the family of the donor.

4. Gifts by family companies to their members, but only in cases where the property transferred, was obtained by the company as a gift.

5. Exchanges of immovable properties

6. Compulsory acquisitions

7. Gifts to charitable institutions

8. Gifts to charitable institutions or the Republic of Cyprus.

ESTATE DUTY

Estate duty was abolished as from 01/01/2000.

COMMUNAL EXPENSES

Communal expenses are usually payable monthly or quarterly, in advance, and vary from development to development depending on the area and type of the property. They cover an immovable property’s owner share of the cost of cleaning and maintaining common areas and gardens, communal swimming pool expenses, electricity in common areas, management fees and repairs.

6 PERSONAL INCOME TAX

All Cyprus tax residents are taxed on all income accrued or derived from all sources in Cyprus and abroad. Individuals who are not tax residents of Cyprus are only taxed on income accrued of derived from sources in Cyprus. An individual is a tax resident in Cyprus if he/she spends in Cyprus more than 185 days in any one year. Days in and out of Cyprus are calculated as follows:

(a) The day of departure from Cyprus counts as a day of residence out of Cyprus.

(b) The day of arrival in Cyprus counts as a day of residence in Cyprus.

(c) Arrival and departure from Cyprus in the same day counts as one day of residence in Cyprus.
(d) Departure and arrival in Cyprus in the same day counts as one day of residence outside Cyprus.

The following income tax applies to individuals:

Chargeable income (CYP)
0-10.000
10.001 – 15.000
15.001 – 20.000

Over 20.00

Tax Rate (%)
0
20
25
30

Accumulated tax (CYP)
0
1.000
2.250
*

* CYP 2.250 plus the incremental amount over CYP 2.000 multiplied by 30%.

Social insurance, provident fund, medical fund, pension fund contributions and life insurance premiums are deducted from income (only up to 1/6 of the chargeable income).

Pensioners
The pension for a person, who is resident in the Republic, paid for services which have been rendered abroad, is taxable at 5% on any amount exceeding CYP 2.000 in a tax year.

The following income sources of pensioners are taxable at the normal tax rate:
1. Interest Income

2. Dividend Income

3. Profits from the disposal of securities (shares, debentures, government bonds).

4. Profits from a permanent establishment which is maintained abroad.

5. The emoluments from salaried services performed abroad for an aggregate period in the tax year exceeding 90 days.

7 CORPORATION TAX

All companies tax resident of Cyprus are taxed on all their income accrued or derived from all sources in Cyprus and abroad. A non-Cyprus tax resident company is taxed on income accrued or derived from a business activity which is carried out through a permanent establishment in Cyprus.

A company is resident of Cyprus if it is managed and controlled in Cyprus.

Corporate Tax Rates:
_________________________________________

Type of Corporation
____________________________________________________

Semi-government organizations
Other companies
____________________________________________________
Tax Rates %
____________________________________________________
25
____________________________________________________
10

For the years 2003 and 2004, any profits in excess of CYP 1.000.000 are subject to an additional tax of 5%.

All expenses incurred wholly and exclusively in earning the income of the company are deducted.

8 DOUBLE TAXATION TREATIES

Cyprus has signed double taxation treaties with a considerably large number of countries and more are under negotiation. These treaties may affect favorably the ownership of immovable property in Cyprus and also groups of people who decide to relocate to Cyprus, such as retired residents, employees and business investors.

Some of the countries with which Cyprus has entered into double taxation treaties are UK, Ireland, Greece, USA, Canada, France, Italy, Russia, Belarus, Romania, China, Austria, Belgium, South Africa, Yugoslavia and many others.