Low taxes and easy bureaucratic procedures attract entrepreneurs and investors from all over the world to invest in the Republic of Cyprus. Cyprus’ low tax regime makes it easy to expand business activities on the island. In the current article, I will present useful information about capital gains and real estate tax schemes in Cyprus. Recent amendments to Law 119(I)/2013 and Law 120(I)/2013 aim to encourage economic activity, attract more investors and further simplify the tax regime in Cyprus. In accordance with the amendments to the laws mentioned above, capital gains are no longer taxed in Cyprus. The only capital gains that are subject to tax are those associated with the disposition of real estate located in Cyprus. Following the amendments to Law 119 (I)/2013 and Law 120 (I)/2013, owners of real estate will be taxed based on the value of their property.

Taxation of capital gains:

Subject to certain exceptions (see list below), capital gains tax applies to profits arising after January 1, 1980, from the sale or transfer of real estate in the Republic of Cyprus or shares of the company, located in Cyprus, owns real estate. property (Reference 1). In summary, the net gain derived from the alienation or transfer of real estate is taxed at a rate of 20%. The calculation of the net benefit derived from the disposal incorporates the inflation rate. Inflation is calculated based on the official retail price index. In addition, according to the amendments of Law 119 (I)/2013 and Law 120 (I)/2013, the value of real estate is calculated following the related provisions of the Real Estate Law.

Exemption List:

  • Transfer of assets due to death.

  • Gifts to children, spouses and any other relatives up to the third degree.

  • Gift to a company. The shareholders of the particular company are and remain members of the donor’s family for five years after the gift offer.

  • Gift offered by a company to its shareholders, given that the particular property was originally donated to the company. In addition, the recipient is obliged to keep the real estate for at least three years.

  • Gift to the government or local authorities of the Republic of Cyprus for educational or other charitable purposes.

  • Exchange or sale based on the Agricultural Land Laws (Consolidation).

  • Exchange of properties. In this case, the values ​​of the real estate that have been exchanged must be the same.

  • Gain derived from the alienation of shares, registered in any Stock Exchange.

  • Transfers resulting from the reorganization.

Lifetime exemptions for individuals:

  • Disposal of own home: Capital gain (85,430 euros)

  • Disposal of agricultural land by a farmer: Capital gain (25,629 euros)

  • Any other disposal of real estate: Capital gains (17,086 euros)

Taxation of Real Estate:

In Cyprus, the annual real estate tax applies to all natural or legal persons who own real estate on the island, regardless of whether or not they are residents of the Republic of Cyprus. The tax they are required to pay is based on the total value of all real estate registered in their name (Reference 2).

The real property tax is calculated according to the market value of the real property as of January 1, 1980 and is paid before September 30 of each year at the Department of the Treasury. At this point it should be clarified that individual owners are exempt from this tax if the value of their property in 1980 is less than €12,500.

The relevant tax bands revised in 2013:

  • If the assessed value of the property in 1980 is less than 12,500 euros, the annual tax rate is 0 (%) and the accumulated tax is zero.

  • If the assessed value of the property in 1980 is between 12,500 and 40,000 euros, the annual tax rate is 0.60 (%) and the accumulated tax is 240 euros.

  • If the assessed value of the property in 1980 is between 40,001 and 120,000 euros, the annual tax rate is 0.80 (%) and the accumulated tax is 880 euros.

  • If the assessed value of the property in 1980 is between 120,001 and 170,000 euros, the annual tax rate is 0.90 (%) and the accumulated tax is 1,330 euros.

  • If the assessed value of the property in 1980 is between 170,001 and 300,000 euros, the annual tax rate is 1.10 (%) and the accumulated tax is 2,760 euros.

  • If the assessed value of the property in 1980 is between 300,001 and 500,000 euros, the annual tax rate is 1.30 (%) and the accumulated tax is 5,360 euros.

  • If the assessed value of the property in 1980 is between 500,001 and 800,000 euros, the annual tax rate is 1.50 (%) and the accumulated tax is 9,860 euros.

  • If the assessed value of the property in 1980 is between 800,001 and 3,000,000 euros, the annual tax rate is 1.70 (%) and the accumulated tax is 47,260 euros.

  • If the appraised value of the property in 1980 is greater than 3,000,000 euros, the annual tax rate is 1.90 (%).

Note: Any registered owner whose real estate exceeds €120,000 is required to file a Declaration of Real Estate (IR 301 and IR 302) and pay the equivalent annual tax before September 30.

Important warnings:

Due to delays in issuance of property titles, some developers are the registered owners of real estate. According to the law, “registered owners” (in our case, developers) are required to pay annual declarations of their real estate to the competent authorities and pay the Real Estate Tax, plus penalties for late payment.

Until title deeds are issued, the buyer is required to pay only property transfer fees to secure ownership of the property they have purchased, which will then be registered in their name.

However, in some Purchase Agreements, developers require buyers to pay real estate tax at the time they take delivery of a property. In many cases, some developers charge buyers outrageous sums of money based on the sale price of the property. In addition, in some cases, promoters add penalties for late payment to the total amount.

I would advise buyers to ask developers to provide them with adequate evidence showing that the property tax that has been paid to the Treasury corresponds to the land where the development has been built.

As a result, I advise buyers NOT to pay the developer any real property taxes unless the developer:

  • Accredit in writing the amount of the Tax on Real Estate that the promoter has paid to the Treasury for the land where the promotion has been built.

  • Provides the buyer with a written statement clarifying the buyer’s shares of the aforementioned land.

  • Issue a written invoice on company letterhead stating the amount agreed to be paid.

  • Issue a written receipt from the company for the amount that had been paid.

Invest in Cyprus: having adequate legal support

As explained above, the amendments to Law 119 (I)/2013 and Law 120 (I)/2013, along with favorable tax regimes, provide more incentives for international investors and entrepreneurs to expand their business activities in Cyprus. However, investors and entrepreneurs should keep in mind that investing in real estate requires proper legal guidance.

Reference 1: TAX DEPARTMENT: DIRECT TAXES: Capital Gains Taxes http://www.mof.gov.cy/mof/ird/ird.nsf/dmlfaq_en/dmlfaq_en?OpenDocument#3

Reference 2: DEPARTMENT OF TAXES: DIRECT TAXES: Real Estate http://www.mof.gov.cy/mof/ird/ird.nsf/dmlfaq_en/dmlfaq_en?OpenDocument#5

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