Notes Of Cyprus Law Relating To The Acquisition Of Immovable Property By Foreigners

Acquisition - Under the Immovable Property Acquisition Law foreign nationality individuals, companies and trusts may acquire freehold immovable property in Cyprus, subject to prior permission by the Council of Ministers.  Normally such permission is granted to acquire a flat, house or a piece of land for the erection of a house not exceeding three donums (4014m²).  This procedure is merely a formality and can be easily carried out for you by our associated law firm.

Once permission is granted and the property is registered in the individuals’ name, there is no restriction for selling the property or disposing of it by will.

Exchange Control - With Cyprus joining the E.U. exchange control restrictions have been abolished both in respect of purchasing and selling the immovable property.

Contract of Sale of Immovable Property - Under the Cyprus Law such contracts must be in writing.  It is also advisable that contracts of sale be deposited in the relevant District Lands Office within two months after the signing of the contract, so that the purchaser’s right to pursue the remedy of specific performance in the event of breach can be protected.  Ownership in Cyprus is denoted by title deeds, issued by the District Land Office.  All contracts must therefore provide for the transfer and registration of the property in ones name and for obtaining a title deed.

Transfer of the Title Deed - Transfer can be affected once permission to acquire has been granted by the Council of Ministers.  Transfer fees are payable by the purchaser on the sale price as follows:
Up to CY£50.000 - 3%
CY£50.000 to CY£100.000 - 5%
Over CY£100.000 - 8%  

Immovable Property Tax - This tax is imposed annually at the following rates on the current market value as at 1.1.1980 of immovable property situated in Cyprus and owned as at 1st January each year.
Up to CY£100.000 - 0%
CY£100.001– CY£250.000 - 2.5%
CY£250.0001– CY£500.000 - 3.5%
OVER   CY£500.000 - 4%

The above rates apply to both legal persons and individuals.

Benefits can arise if the property is jointly owned by two individuals as the value of property represents the cost to each owner.  For example if a property was jointly bought by two individuals for CY£110.000 then the cost for each owner for the calculation of the transfer fees and the immovable property tax is CY£55.000 and the respective rates would have been 3% and 0% instead of 5% and 2% as the cost falls into the lower bands.

Stamp Duty - A one-off stamp duty is levied on the purchase of property in Cyprus. The rates are dependent on the contractual purchase amounts and payment is due within 30 days of signing the sale agreement.  The amount is payable by the purchaser to the Tax Authorities.
Up to CY£100.000  0.15%
OVER  CY£100.000  0.20%

Inheritance Tax - This was abolished as of 1st January 2000.

Local Authority Tax - The tax covers the cost of refuse disposal, street lighting etc. and ranges between CY£30 - CY£100 per annum depending on the size of the property.

Selling Your Property

Capital gains tax is paid on gains arising from the sale of immovable property. Tax due is 20% on gains realized, which is calculated as follows:

Proceeds from the sale less cost of Property, professional and legal fees, commission, interest paid, inflation allowance and investment allowance (CY£10,000 on disposal of any property and CY£50,000 on disposal of residence provided that he has been using the same as his residence for at least 5 years prior to the sale).

The investment allowance is granted only once, unless it has not been exhausted at the first sale, in which case any balance would be carried forward. The investment allowance is granted to each owner of the property. For example, if the property is owned by a husband and wife then the total investment allowance is CY£20,000.

The following categories of dispositions are exempt from Capital Gains Tax:

Transfers by reason of death.
Donations between relatives up to the third degree of kindred.
Donations to limited companies all the shareholders of which are members, and continue for 5 years after the
donation to be members, of the family of the donor.
Donations from family companies to their shareholders, but only in cases where the property gifted was originally acquired by the company also by way of a gift.
Donations to Charitable Institutions or to the Republic of Cyprus.
Exchanges of permanent residence.
Compulsory acquisitions.

Example: Capital gains calculation

Proceeds on sale of property (all in CYP£)    200.000
Cost of acquisition                                        (100.000)
Inflation allowance £100.000 x 52,67%           (52.670)
Gain on sale of property                                  47.300
Less Investment allowance*                            (10.000)
Taxable Gain on sale of property                     37.300
 Capital gains tax due £37.300 x 20%                7.460

Note that investment allowance is given to each person.  Therefore, in our example, if the property owners were two persons instead of one, then the total allowance would beCY£20,000 with taxable gain of CY£27,300 and capital gains tax due CY£5.460.

Tax Issues

Individuals are taxed in Cyprus based on their residency status, which falls into two main categories; permanent residents and non-residents.

(a) Permanent Residents

An individual who spends at least 183 days in Cyprus in the tax year will be considered to be a Cyprus resident for tax purposes. These are people who:

Either settle permanently in Cyprus upon retirement.
Are foreigners who live indefinitely or for a fixed period of time in Cyprus as employees, either of their own International Business (Offshore Company) or of a local or offshore firm, and who choose to purchase their own property in Cyprus rather than live in rented premises.
Are business people who wish to take advantage of tax and other fiscal advantages offered when having the Cyprus tax residency.

The Cyprus Government gives a series of incentives to these people, including very low taxation of their income, which emanates from abroad.

Individuals are taxed in Cyprus on the following types of income:

Profits from a business activity in Cyprus.  Profits earned from a permanent establishment abroad are fully exempt from corporation tax.
Worldwide employment income.
Pensions in respect of past employments exercised in Cyprus.
Pensions exercised outside Cyprus will be taxed either at normal income tax rates as shown on the table below or at the option of the taxpayer, at the flat rate of 5% on the excess of CYP£2.000.

Income tax rates applicable from 2004
 
Taxable Income  Rate
Up to CYP£10.000  Nil
CYP£10.001 -  CYP£15.000 20%
CYP£15.001 - CYP£20.000 25%
Above £20.000  30%

Deductions and Allowances

The following can be deducted in calculating the tax liability:

There will be a deduction of 20 per cent for the first 3 years in Cyprus, limited to CY£5.000 (US$8.000).
Life assurance premiums.
Contributions to state social security and welfare fund and pension funds.

Expatriate Tax & Social Security Contributions

Expatriate employees are taxed as follows:

Individuals who perform all their employment duties abroad will not be taxed on their earnings
Those who are present for 183 days or more in Cyprus in the tax year, will be taxed on their worldwide earnings
Those who are present for less than 183 days in Cyprus in the tax year will be taxed on their earnings attributed to their days of work in Cyprus.
Individuals who originate from countries where a social security agreement has not been signed between their country and Cyprus will be liable to social security contributions.  UK citizens can opt out for a period of three years as the relevant agreement has been signed between the two countries.

Contributions are currently payable by both employers and employees at the rate of 6.3%

Individuals are not taxed in Cyprus on interest and dividends received from sources either within Cyprus or from abroad except for Defense fund contribution as explained here below.

Defense fund contributions are payable on the following cases:

10% tax charge on interest from investments in Cyprus or abroad.
3% tax charge on 75% of the gross rental income from real property wherever it is located.
15% tax charge on dividends received from both Cypriot and non-Cypriot companies.
Relief in the form of tax credit is given for any foreign taxes paid on the above.

Gains from disposal of securities

Any gains realised from the disposal of securities are not subject to taxation in Cyprus.  This exemption applies for all gains including those arising from trading in securities.