What do you need to know about buying a property in Cyprus?

 

1.0 Non Cypriots not residing in Cyprus can buy and acquire the Title Deed to only one property on the island, (house, flat or plot up to 4014 square meters). For this purpose, they will need the approval of the Council of Ministers which these days, is really just a formality.

For Europeans, there is no restriction on the number of pieces of land or on the size of land they can buy. Applications to the Council of Ministers must be submitted to the District where the property is located. A copy on the Survey Plan, Building Permit, Contract of Sale and the Title Deed must accompany the application. When the approval is granted, provided that the separate Title Deed is available, the purchaser can acquire his/her Title Deed.
The legal system for the Island of Cyprus is the Common Law. Cyprus was a British Colony from 1878 to 1960 and the British legal system was adopted, as well as the Land Registry procedures.

Land Registry in Cyprus is very good and accurate and investors and/or buyers can rely on the information and results of searches given by this office.

2.0 According to the Immovable Property Acquisition (Aliens) Law Cap. 109, as amended by Laws 52/69, 55/72, 50/90 and 54(1)/03, approval to acquire immovable property is no longer required (since 1st May 2004, when Cyprus became a member of the European Community), in the following cases:

a. For a citizen of a member state of the E.U. who has his/her permanent home in the Republic of Cyprus.

b. For a legal person (company) who is registered according to the law of a member state of the E.U. and which has, as per the Constitution, the Head Office, the Central Administration and the main establishment, in the Republic of Cyprus.

c. For a citizen of a member state of the E.U. who does not reside permanently in Cyprus in cases where he/she acquires property other than a secondary home (i.e. land).

d. For a legal person (i.e. a company) who is registered according to the law of a State member of the E.U. and which has, as per the Constitution, the Head Office, the Central Administration of the Company and the main establishment in a member state, in cases of the acquisition of immovable property other than a secondary home (land).

3.0 According to Article 2 of the Immovable Property Acquisition (Aliens) Law, Conditions, Restrictions, Requirements, Criteria for the issue of the approval (Amended), Regulations 2004 K.D.P. 534/2004:

a. A physical person to whom a permit to stay in the Republic of Cyprus is granted, according to the conditions of Article 7 and/or 11 and/or 18 and/or 30 and/or 37 and/or 57 of Free Movement and Residence of citizens of Member States Of the European Community and of the members of their families, Law (N92(1)/2003), is considered as having a place of permanent residence in Cyprus and

b. A legal person who is registered according to the law of a Member State, means the legal person who has secured, according to the provisions of the company law, a certified copy of the Certificate of Registration and/or the Registered Office of the company.

A person living permanently in Cyprus as per para 3(a) above can easily secure a certificate that he/she can use to acquire as many properties in Cyprus as he/she wishes.

The acquisition of the certificate is very simple. The citizen of a member state of the E.U. living in Cyprus can visit the District Administration Office for the area in which he/she lives, along with his/her passport and Temporary Resident Permit. A form, giving their full name and address, will be filled in and a small fee is required to be paid. In a few days they will receive the certificate, which gives them the right to acquire an unlimited number of properties of any size in Cyprus.

Since the 1st May 2004 when Cyprus joined the European Community, Europeans have the right to buy land without any restriction on size or number of pieces.

 

4.0 Title Deeds

a. Purchasers buying a property built some years ago or is one unit and not part of a complex, can acquire their Title Deed immediately.
The procedure is exactly the same as in the U.K.
It is wise to appoint a local Lawyer. The Lawyer must then make a search and if the results are satisfactory, contracts ca be exchanged immediately. The vendor then provides the Title Deed without delay.

b. Purchasers of a property under construction, or just completed or part of a project, must follow a slightly different procedure and cannot acquire the Title Deed to their property immediately.
The Title Deeds to new properties, or to properties which are part of a project, takes approximately 3-4 years following completion, to be issued.

Purchasers can feel safe as long as their lawyer acts as follows:

I. A search is made to confirm that the land on which the project is under construction, or has just been completed, is clear of any encumbrances.

II. Ensures that stage payments are in accordance with the progress of the work.

III. That the Contract of Sales is stamped by the Tax Office and lodged with the Land Registry for Specific Performance purposes, (Law cap 232 as amended by the laws 50/70, 96/72 and 51(1)/95).

The lodging of the contract with the land Registry Office (fee €1.71) is very important because the property is then blocked and the Vendor cannot sell it or transfer it to anyone else.

Neither can the property really be mortgaged by the Vendor as the banks are not in favour of waiting in line.

In the unforeseen event that a Developer should suffer financial problems, the Purchasers must be satisfied first, then the banks. Hence it is in general, the policy of the banks to avoid the mortgage of the property by the Vendor.

If the contract is not lodged with the Land Registry, the Purchaser(s) cannot sue the Vendor requesting the specific property. He/she can only sue for the market value of the property at the date of the breach.

The lodging of the contract with the Land Registry Office secures and restricts the amount payable for transfer fees (stamp duty) which are payable when the Purchaser(s) acquire their Title Deeds.

By lodging the contract, the Land Registry is bound to take as the value of the property, the value as at the date of the contract. In this way, the Purchaser(s) do not pay heavy transfer fees based on a valuation much after the date the property was purchased.

Contracts must be stamped within 30 days if signing otherwise a penalty is charged and added to the cost of the stamps. The contract must also be lodged with the Land Registry Office within 60 days of signing, failure to do so results in the right to lodge being lost, and the contract can then never be lodged.

The Title Deeds take time to be issued because the Companies developing land must secure a Building Permit, a Certificate of Approval for the building, Division Permit and a Certificate of Approval for the Division, for submission to the Land Registry to issue separate Title Deeds. Government Departments are very busy and Title Deeds take some time to be released. The lack of a separate Title Deed does not prevent a property owner from selling their property. In this instance a cancellation contract of sale between the Vendor and the new purchaser will be drawn up.

Purchasers must, at the time of purchase, agree the cancellation fee that the Developer will charge, should the Purchaser decide to sell his/her property before the separate Title Deed is issued. It is advisable to include this agreement in the contract of sale.

 

5.0 Stamp Duty

Before the contract is lodged in the Land Registry Office for specific performance purposes, it needs to be stamped by the Tax Office.

The Stamp Duty is calculated as follows:

Property Value (€) Rate per Thousand on the first 0 to 5000 euro is 0 and from 5000 euro to €170.860 – 1.5/ thousand on the balance 2/thousand. The stamp duty must be paid within 30 days of signing the contract to avoid paying a penalty.

 

6.0 What expenses does the owner of an apartment have to meet? What is the owners share?

Immovable Property Tax (IPT): The Purchaser is obligated to pay all Property Taxes including the (IPT). This is a government imposed tax which is levied on the value of the property. Until the separate title deeds for each property are issued by the District Land Office, the Developer as the registered owner pays the relevant taxes once a year for all properties based on the estimated 1980 value of the properties as a whole in accordance with the instructions given by the tax office. The developer then uses the same percent estimation on the contract value, to allocate the taxes to each individual beneficiary “owner” of each property.

IMMOVABLE PROPERTY TAX 2014

Immovable Property Tax (IPT): The Purchaser is obligated to pay all Property Taxes including the (IPT). This is a government imposed tax which is levied on the value of the property. Until the separate title deeds for each property are issued by the District Land Office, the Developer as the registered owner pays the relevant taxes once a year for all properties based on the estimated 1980 value of the properties as a whole in accordance with the instructions given by the tax office. The developer then uses the same percent estimation on the contract value, to allocate the taxes to each individual beneficiary “owner” of each property.

IMMOVABLE PROPERTY TAX 2014 
Property value
Annual Tax (Euros per Thousand ‰)
1-€40.000* – 0.6
€40.001 – €120.000 – 0.8
€120.001 – €170.000 – 0.9
€170.001 – €300.000 – 1.1 
€300.001 – €500.000 – 1.3
€500.001 – €800.000 – 1.5
€800.001 – €3.000.000 – 1.7
More than €3.000.000 – 1.9

*Owners of properties whose 1980 value is no more than €12.500 are exempted. Owners of properties whose 1980 value exceeds €12.500 will have to pay tax on their total 1980 value and not benefit from the €12.500 exemption. The taxable threshold pertains to the aggregate value of properties registered under a person. Immovable Property Tax is payable annually.

Municipality Property Tax: This is also a property tax which is paid to the local municipality, in accordance of the same procedure as above and then is allocated to the individual properties.

Sewerage Board of Pafos (SBP): This tax is also paid by the Developer as explained above until the issue of separate title deeds as a whole and then allocates to each property. This is a tax collected by the municipality of Pafos in order to put the whole area onto the mains sewage line.

Municipality/Council Tax: This Tax is paid directly by the individual owners to the Municipality or Town Council and it is billed by the Water Board once a year. This is for things like the street cleaning, street lighting, refuse collection etc.

Communal Expenses: This is a fee for the maintenance of the communal areas on your project as per Contract of Sale and or Management Agreement. This charge is payable in advance every year, starting with the delivery of the property and covers the following:

  • Landscape and garden maintenance.
  • Pool and other common facilities maintenance.
  • Pool chemicals.
  • Water supply for common areas.
  • Electricity supply for common areas.
  • Insurance cover for common areas.
  • Cleaning services of common areas.
  • Property management services of the whole project, not individual
    property management.
  • Any gardening/cleaning equipment needed to perform the above tasks.
    Communal Expenses are not applicable for the properties, which don’t have commonly owned facilities (e.g. private villas with individual pools).
    In addition to the above expenses you will have to pay the electricity and water consumption, for which there are separate meters provided for each property.

 

7.0 Inheritance Tax 

On the 1st January 2000, Law 74(1)/2000 came into force. This law abolished all obligations to pay Inheritance Tax regardless of the size of the estate. The fact that there is no Inheritance Tax to pay under Cyprus Law is encouraging people to invest in the island.

 

8.0 Capital Gains Tax
From the profit following the sale of a property, the first €17.086, 00 (per person), a figure for inflation, transfer fees, Estate Agents fees (provided the agent is registered) and any additions to the property (provided receipts can be produced) are all free of tax. Capital Gains tax is then charged on the balance at the rate of 20%. If the property sold has been the home of the Vendors for at least five years, €85.430, 00 tax relief can be claimed.

Exemptions to the tax
In the following cases no tax is paid:

(a) For gain up to € 17.086 or for a gain up to €25.629 in the case of agricultural land (section 5(1)). This exemption applies only once in a life time.

(b) For gain up to €85.430 in the case residences provided the seller stays in the house for a period of at least 5 years and the land area does not exceed 1.500 square meters (section 5(2)).

  • In the case of a second or subsequent sale of a house the period of stay of the seller is increased to 10 years.
  • The maximum allowance that a natural person is entitled is €85.430.

 

9.0 VAT

The rate of VAT in Cyprus is currently 19% VAT on new property is chargeable as of 1st May 2004, at the rate of 5% for a property that is the principle place of residence, and since the 13th of January 2014 the VAT rate is 19% for secondary properties. For projects, VAT is payable on the selling price of the property and land and building cannot be split. .
No VAT is payable in cases where an application for a Planning Permit was submitted before 1st May 2004.

10.0 Transfer Fees

When Purchasers acquire their Title Deed they must pay transfer fees to the Government.

In cases where the property is part of a project under construction, the Purchaser must expect the separate Title Deed to be ready in approximately 3-4 years from the date of the delivery of the possession of the property and he/she will pay the transfer fees at that time, in order to acquire it.

The Transfer Fee is the most serious expense over and above the sale price that the purchaser bears, and is calculated as follows:

Property Value (€) Percentage Rate
on the first €85.430 3%
on the second €85.430 5%
on any amount above €170.860 8%

Two purchasers buying one property will pay less in transfer fees as the first €£85.430 per person is 3% and the second €85.430 per person is 5%.

In the case of trapped buyers (buyers of property on which there is a seller’s mortgage) they have the option to pay, as transfer fees:

  • The amount discounted by 10% or
  • The whole amount into 12 monthly installments.
  • In case of refusal to pay the fees, there are increased by 50% and are noted as an encumbrance in the title.

 

11.0 Work permit

Cyprus is now a part of the European Community and there is no longer a need to obtain a work permit.

CHANGES ON PROPERTY TAX AND BUSINESS LAW 

CYPRUS TAX NEWS
In this circular we would like to summarize the key features of the first package of measures adopted on 26 August, 2011 by the House of Representatives in Cyprus. Please refer to sections (I) and (II) below.

In addition as from 1st of October 2011 some important administrative changes in the Cyprus Tax Laws has come into force. Non adherence of the below administrative changes will result in the payment of penalties even in cases of dormant or loss making companies. Please refer to section (III) below.

It is important to note that these measures come into immediate effect.

In particular we would like to draw your attention to paragraph (II) below as the new government levy is now due by 31st December for all companies registered in 2010 and prior years subject to the conditions mentioned below.

In addition we draw your attention to the various administrative issues raised in section (III), which makes it ever more important to maintain proper documentation and inform us of your activities on a timely basis.

(I) THE INCOME TAX LAW

(a) Increase in the maximum personal income tax rate to 35%. A new income tax rate of 35% is introduced for individuals on taxable income in excess of €60.000.

Personal income tax rates
Income Rate Tax Tax Taxable Tax Cumulative
€ % € €

0 – 19.500 0 0 0
19.501 – 28.000 20 1.700 1.700
28.001 – 36.300 25 2.075 3.775
36.301 – 60.000 30 7.110 10.885
60.001 and over 35

(b) Tax incentives for the employment in Cyprus of highly paid non Cypriot resident individuals

In order to encourage the establishment or expansion in Cyprus of new businesses, tax incentives are offered for the employment in Cyprus of persons who are not tax residents of Cyprus. In such a case, if the income from employment exceeds € 100.000 per annum, a 50% deduction is allowed for such income for the first 5 years of employment. The incentive is granted both to Cyprus and non-Cypriots, on condition that prior to employment in Cyprus such a person was resident outside Cyprus and was not considered as a tax resident of Cyprus.

(c) Entry into force
The increase in the personal tax rate has come into effect since 1 January 2011, whereas the incentive for new employees has come into force for employments since 1 January, 2012. Increase in the rate of defence tax on interest from 10% to 15%. The rate of special contribution for the Defence of the Republic (“defence tax”) on interest received or credited by Cypriot tax residents is increased from 10% to 15%. This applies to both individuals and corporations. In the case of corporations, if the interest results from the ordinary carrying on of any business, including any interest closely connected with the ordinary carrying on of the business, it is not subject to defence tax, but instead is subject to corporate income tax. Therefore, financing companies, including companies involved in intra-group financing activities, are not expected to be affected from the change in the rate. It should be noted that no defence tax is payable on interest payments to non-residents. It should also be noted that this provision applies to interest received by resident individuals or corporations, both from sources within Cyprus and outside of Cyprus.

For provident funds defence tax on interest received remains at 3%, as well as in the case of an individual whose total income for the year does not exceed € 12.000 (including interest income). The same rate applies to interest received by an individual from Government savings certificates and development stocks.

(d) Increase in the rate of defence tax on dividends from 15% to 17% the rate of defence tax on dividends received by a Cypriot tax resident is increased from 15% to 17%. This applies only to individuals, since under the provisions of the legislation companies are generally exempt from the payment of defence tax on dividends.

The increase in the rate also applies when the deemed distribution rules are applied in cases where a tax resident company does not distribute within two years at least 70% of its after tax profits.

It should be noted that no defence tax is levied on dividends paid to non-resident individuals or corporations. It is also noted that the deemed distribution rules are not applicable in the case where shareholders of a resident company are non-tax residents of Cyprus. However, the deemed distribution rules are applicable in the case of a Cypriot tax resident company owned by another Cypriot tax resident company, which in turn is owned by non-residents. It is expected that shortly such companies will be excluded from the provisions of the deemed distribution rules, therefore there would be a significant benefit for such companies in case of inability to distribute an actual dividend.

(II) THE COMPANIES LAW

(e) As from 2011 an annual levy of € 350 is introduced for all companies incorporated in Cyprus payable to the Registrar of Companies. For groups of companies the maximum levy is fixed at € 20.000

(g) The levy must be paid by 30 June of each year.

(h) Dormant companies, companies which do not own any assets, as well as companies owning property located in the non-Government controlled areas of Cyprus are exempted from the payment of the levy.

In case where the levy is not paid within the prescribed period, if the levy is paid within two months from the due date, a penalty of 10% is payable which is increased to 30% if the levy is paid within five months from the due date. If the levy is not paid within five months, the Registrar of Companies will remove the company from the registry (something which is expected to restrict the company from filing documents or requesting certificates from the Registrar’s Office). The return of the company to the registry can be effected within two years with the payment of a levy of € 500 per annum and thereafter with the payment of a levy of € 750 per annum.

(III) ADMINISTRATIVE CHANGES

(a) Obtaining a Tax Identification Code

Following the registration or the incorporation of a company with the Registrar of Companies, the company is obliged to submit an application for registration with the Inland Revenue Department and obtain a Tax Identification Code (‘TIC’) within 60 days. Similar rules apply in the case of companies incorporated outside Cyprus that become tax resident of Cyprus. There will be a penalty of €100 for the non-registration with the tax office within the 60 days period.

(b) Notification of changes of the companies details as these are included in the Inland Revenue Form no. 162, i.e. registered office, activities, auditors etc. The company is obliged to inform the tax office by submitting form IR 162 for any changes in the company’s data. There will be a €100 one off penalty for non-informing the tax office within the 60 days period of such changes. The penalty will be applicable on each change not communicated.

(c) Maintaining proper Books and records for businesses who are obliged to keep accounting books, the books should be updated not later than four months from the month the transaction was made. If the monthly transactions are not posted within the above time limit a penalty of € 100 will be imposed (on a quarterly basis).

(d) Issuance of Invoices. The issuance of invoices must be made within thirty days from the date the transaction was made, unless the taxable person requests in writing from the Commissioner for an extension and an extension of the deadline is granted to him. If the monthly invoices are not issued within the above time limit, a penalty of €100 will be imposed. The penalty will be imposed on a monthly basis irrespective of the number of invoices failed to be issued within a specific month.

(e) Administrative penalties for late submissions Various administrative penalties are imposed in case of non-timely submission of tax returns or provision of information to the tax office (€ 100- € 200 depending on the omission). If the IR 4 for a year is not submitted by 31st December, there will be a penalty of 100 euro.

(f) 5% Penalty on late payments of taxes Any person omitting to pay the taxes due on the due payment date (as this is determined in the law or within the time limit provided by the law) will be liable to 5% penalty on the due tax in addition to the applicable interest.

 

NOTE

We cannot be responsible for any changes or amendments in the legal system. You should consult a solicitor prior to data of making your buying decision for your property.