Acquisition of real estate property in Cyprus
Contributed by Oxford Tax Solutions
17 May, 2021
Interest in purchasing real estate in the Republic of Cyprus has increased during the last few years. Cyprus's warm climate, favourable tax system, strategic geographical position, EU membership and the double tax treaties signed with a number of other countries, are only a few of the reasons that has led Cyprus to become the ultimate hub for real estate investment.
Immovable property transactions are regulated by Cyprus Law that is generally followed by the respective UK Laws. Individuals and companies acquiring real estate property in Cyprus have the same rights as locals and ownership is secured.
Europeans vs Non-Europeans
When purchasing real estate in Cyprus, there are a few differences between European nationals and Non-European nationals.
European residents (including companies with shareholders that are EU residents) are permitted to purchase any residential and commercial real estate in Cyprus without any restrictions. EU residents are treated as locals and can register for as many properties as they wish in their name.
Non-EU residents that wish to acquire real estate in Cyprus are obliged to follow certain regulations and restrictions. Restrictions apply to the type of property and the size. Non-EU residents are permitted to purchase only one apartment or house or building or plot of land. In addition to this, the size of the property must not exceed 4,014 square meters.
These regulations and restrictions will not apply if the real estate is acquired through a Cyprus company. A Cyprus company that is owned by non-EU residents can also purchase immovable property in Cyprus to match their operational needs, assuming that they hold and maintain a fully-fledged office. A company owned by non-EU residents can also purchase property for their foreign employees to reside in. In such cases the residence must be registered on the employees' name. Non-EU residents must ensure that they obtain permission to buy property from the council of Ministers by a written application that is submitted after the sales agreement has been signed.
Procedure and recommendations prior to acquisition of property
Prior to the acquisition of immovable property, it is important that a due diligence procedure is performed. A few key guidelines are listed below:
- The buyer must ensure that property has no encumbrances such as memos or mortgages. This can be done through a search at the District Lands office;
- The buyer should confirm that the title deeds match the property details;
- The buyer must also ensure to obtain the required building permits, planning permits and final approval certificates and submit them to the relevant authorities;
- The buyer should also take into consideration the reputation and legal status of the developer;
- If acquiring land, the buyer must ensure that the land is suitable for building purposes;
- Ensure that both stamp duty on agreement and title deed transfer fees are paid in a timely manner to ensure that process runs smoothly;
The best practice is to set-up a sale agreement that will include all terms and conditions of the transaction and that will be signed by both parties.
The following are the main taxes and charges arising from the acquisition, ownership and disposal of immovable property in Cyprus for both individuals and entities:
When purchasing immovable property in Cyprus, the sales agreement must be stamped at the Tax Office within a period of 30 days and then deposited at the District Lands and Surveys office. Stamp duty is paid to the Inland Revenue. Stamp duty is calculated based on the value stated in each contract in the below manner:
|Value of contract EUR||Stamp duty|
|0 to 5,000||Nil - exempt|
|5,001 to 170,000||0.15%|
|Over 170,000||0.20% (Capped at maximum of EUR 20,000)|
Purchase of immovable property in Cyprus is completed when the title deed is registered on the name of the buyer. Transfer of ownership is a simple procedure of registration with the District Land Registry Office. When the title registration is being processed, the Land Registry Office will estimate the market value of the property at the time of signing of the contracts and charge transfer fees accordingly. See charges below:
|Value of property EUR||Transfer fees||Accumulated tax EUR|
|0 to 85,000||3%||2550|
|85,000 to 170,000||5%||6,800|
|Above 170,000||8%||Depends on value of property|
There is currently a 50% discount on the above rates if transfer related to a transaction that is not subject to VAT. In cases where the transaction is subject to VAT then no transfer fees are charged.
Value added tax (VAT)
Whether a property is subject to VAT and the rate of applicable VAT, are two matters that must be covered in the sales agreement.
Value added tax at a rate of 19% is imposed on the acquisition price of new and unused properties only.
An individual can apply for a preferential reduced VAT rate of 5% to be imposed on the acquisition or construction of their residence, assuming the below listed criteria are met:
- Application must be done by an eligible person. Eligible persons are defined as a Cyprus resident, EU and Non-EU Member State resident. Individuals must be over the age of 18. Legal entities are excluded;
- Property must be used as the primary and permanent place of residence for the next 10 years;
- The buyer must not have acquired another property with a preferential VAT rate in the last 10 years;
- Reduced VAT rate of 5% is applicable on the first 200m2 of the property only. On the remaining square meters a standard rate of 19% is imposed.
The application for a reduced VAT rate must be submitted before acquisition of residence or in the case of construction, at any stage of construction. Along with the application, the eligible person must submit appropriate documentation and evidence proving ownership and that the property will be used for permanent stay. The reduced rate applies to properties purchased from individuals who do not normally reside in Cyprus, but acquire the property to be used as their residence while in Cyprus.
Immovable property tax
Immovable property tax payable to the Inland Revenue has been abolished as of 2017.
Inheritance tax has been abolished in Cyprus since 2000.
Local taxes and rates
Depending on which municipality/council the property is located in, local taxes and charges very. Generally taxes range from around EUR 100 - EUR 300 annually. These charges also depend on the size of the property and are usually for refuse collection, sewage and other communal services.
Sale of immovable property in Cyprus
Capital gains tax in Cyprus is imposed at a flat rate of 20% on the disposal of immovable property located in Cyprus. There are however, lifetime exemptions for individuals that can be claimed and will be deducted from the taxable capital gain from the sale. Exemptions are listed below:
- The first EUR 17,086 taxable gain from the disposal of property situated in the Republic of Cyprus is exempt;
- The first EUR 25,629 taxable gain from the disposal of agricultural land under the condition that the main occupation of the individual is agriculture will be exempt;
- The first EUR 85,430 taxable gain from the disposal of private residence used by the owner. Conditions apply.
When calculating income from the disposal of immovable property there are a few deductions to take into consideration from the proceeds received from the sale. These are:
- The value of the immovable property as at 01/01/1980 or cost of acquisition if date is later, adjusted for inflation up to the date of disposal;
- Expenses directly related to acquisition or disposal of property e.g. transfer fees, estate agent commissions, legal expenses etc.;
- Any additions made after acquisition date, adjusted for inflation up to date of disposal;
All taxes and fees associated with the acquisition, owning and disposal of real estate property have been listed above, along with the procedures that need to be followed and general guidelines. Our legal team can provide guidance and assistance to ensure you're your property acquisition process runs smoothly and in a timely matter. Please contact Oxford Tax Solutions for further details.
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