Acquisition of real estate in Cyprus – Real estate and construction



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Interest in buying real estate in the Republic of Cyprus has increased in recent years. Cyprus’s hot climate, favorable tax system, strategic geographical position, EU membership and double taxation treaties signed with a number of other countries are just some of the reasons that led Cyprus to become the ultimate hub for real estate investment.

Legal framework

Real estate transactions are governed by Cypriot law which is generally followed by the respective UK laws. Individuals and companies who acquire real estate in Cyprus have the same rights as residents and the property is guaranteed.

Europeans vs non-Europeans

When buying real estate in Cyprus, there are some differences between EU nationals and non-EU nationals.

Europeans

European residents (including companies whose shareholders are EU residents) are allowed to purchase residential and commercial real estate in Cyprus without any restrictions. EU residents are treated like locals and can register for as many properties as they wish on their behalf.

Non-Europeans

Non-EU residents who wish to acquire real estate in Cyprus are required to adhere to certain regulations and restrictions. Restrictions apply to property type and size. Non-EU residents are only allowed to buy one apartment or house or building or land. In addition to this, the size of the property should not exceed 4,014 square meters.

These regulations and restrictions will not apply if the property is acquired through a Cypriot company. A Cypriot company owned by non-EU residents can also purchase real estate in Cyprus to meet their operational needs, assuming they own and maintain a fully-fledged office. A business owned by non-EU residents can also purchase real estate for their foreign employees to reside there. In such cases, the residence must be registered in the name of the employees. Non-EU residents must ensure that they obtain permission to purchase property from the Council of Ministers through a written request which is presented after the signing of the sales agreement.

Procedure and recommendations prior to the acquisition of a property:

Before acquiring real estate, it is important that a due diligence procedure is carried out. Some key guidelines are listed below:

  • The buyer should make sure that the property has no charges such as memos or mortgages. This can be done by a search at the district land office;
  • The buyer must confirm that the title deeds match the details of the property;
  • The buyer must also ensure that he obtains the required building permits, planning permits and final certificates of approval and submit them to the competent authorities;
  • The buyer should also take into consideration the reputation and legal status of the developer;
  • In case of acquisition of land, the buyer must ensure that the land is suitable for construction;
  • Ensure that the stamp duty on the agreement and the title transfer fees are paid in a timely manner to ensure the smooth running of the process;

The best practice is to establish a sales agreement which will include all the terms and conditions of the transaction and which will be signed by both parties.

Here are the main taxes and charges arising from the acquisition, ownership and disposal of real estate in Cyprus for individuals and entities:

Stamp duty

When buying real estate in Cyprus, the sales contract must be stamped at the tax office within 30 days and then filed with the district land and survey office. Stamp duty is paid to the Inland Revenue. The stamp duty is calculated on the basis of the value indicated in each contract as follows:

Contract value €

Stamp duty

0 – 5,000

None – exempt

5,001 – 170,000

0.15%

Over 170,000

0.20% (capped at € 20,000 maximum).

Transfer fee

The purchase of real estate in Cyprus is completed when the title deed is registered in the buyer’s name. Transfer of ownership is a simple registration process 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 the contracts and charge the transfer fee accordingly. See the fees below:

Property value €

Transfer fee

Cumulated tax €

0 – 85,000

3%

2,550

85,000 – 170,000

5%

6,800

Above 170,000

8%

Depends on the value of the property

There is currently a 50% discount on the above rates in the event of a transfer related to a transaction not subject to VAT. In cases where the transaction is subject to VAT, no transfer fee is charged.

Value added tax (VAT)

The question of whether a good is subject to VAT and the applicable VAT rate are two questions that must be covered in the sales agreement.

Value added tax at the rate of 19% is imposed on the purchase price of new and unused properties only.

An individual can request a preferential rate of reduced VAT of 5% to be imposed on the acquisition or construction of his residence, provided that the criteria listed below are met:

  1. The request must be made by an eligible person. Eligible persons are defined as a resident of Cyprus, a resident of the EU and a non-EU state. Natural persons must be over 18 years old. Legal persons are excluded;
  2. The property is to be used as the primary and permanent place of residence for the next 10 years;
  3. The purchaser must not have acquired another property at preferential VAT rate during the last 10 years;
  4. A 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 request for a reduced rate of VAT must be made before the acquisition of the residence or in the event of construction, at any stage of the construction. In addition to the application, the eligible person must submit appropriate documents and evidence proving the property and that the property will be used for a permanent stay. The reduced rate applies to properties purchased from people who are not normally resident in Cyprus, but who acquire the property that will serve as their residence during their stay in Cyprus.

Property tax

The property tax payable to the Inland Revenue was abolished as of 2017.

Inheritance tax

The inheritance tax has been abolished in Cyprus since 2000.

Local taxes and tariffs

Depending on the municipality / council in which the property is located, local taxes and charges are very important. In general, taxes vary from around € 100 to € 300 per year. These fees also depend on the size of the property and typically relate to garbage collection, sewage, and other communal services.

Sale of real estate in Cyprus

Cyprus capital gains tax is imposed at a flat rate of 20% on the disposal of real estate located in Cyprus. There are, however, lifetime exemptions for individuals which can be claimed and which will be deducted from the taxable capital gain resulting from the sale. The exemptions are listed below:

  • The first taxable capital gain of € 17,086 from the disposal of property located in the Republic of Cyprus is exempt;
  • The first taxable capital gain of € 25,629 resulting from the sale of agricultural land provided that the main activity of the individual is agriculture will be exempt;
  • The first taxable capital gain of € 85,430 from the sale of the private residence used by the owner. Conditions apply.

When calculating income from the disposal of real estate, there are a few deductions to consider from the proceeds of the sale. These are:

  • The value of the building on 01/01/1980 or the acquisition cost if the date is later, adjusted for inflation up to the date of disposal;
  • Costs directly related to the acquisition or disposal of property, for example transfer fees, realtor commissions, legal fees, etc. ;
  • Any addition made after the acquisition date, corrected for inflation up to the disposal date;

All taxes and fees associated with the acquisition, possession and disposal of real estate have been listed above, along with the procedures and general guidelines.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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