Taxes in relation to property in Cyprus

In Cyprus, there are several taxes that may be applicable to the purchase of real estate. These taxes include transfer fees, stamp duty, value-added tax (VAT), and capital gains tax (CGT).

Transfer Fees – Payable by the buyer

When a property is registered with the Land Registry Office, the buyer must pay transfer fees based on the value of the property as determined by the Land Registry Office. The fees are calculated as follows:

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When the transfer is subject to value-added tax (VAT), transfer fees are waived. When the transfer is NOT subject to value-added tax (VAT), transfer fees are reduced by 50%.

Stamp Duty- Payable by the buyer

In Cyprus, stamp duty is a tax that is levied on certain legal documents, including property transfer deeds and mortgage agreements. The rate of stamp duty depends on the nature of the document being stamped and the value of the transaction.

For property transfer deeds, the stamp duty rate is based on the value of the property being transferred. The rate is calculated using the following rates:

Value Added Tax – Payable by the buyer

In Cyprus, the sale of newly constructed buildings and the land they are on is subject to value-added tax (VAT) at the standard rate of 19%. The sale of used buildings is not subject to VAT.

The purchase or construction of a house or apartment to be used as a primary residence is subject to a reduced VAT rate of 5% under specific conditions.

The sale of undeveloped land intended for the construction of one or more buildings by a person as part of their economic activities is subject to VAT at the standard rate of 19%.

If a taxable person leases immovable property for the purpose of conducting taxable business activities, the leasing of that property is subject to value-added tax (VAT) at the standard rate of 19%.

Capital Gains Tax (CGT) – Payable by the seller

CGT is applied (if the disposal is not subject to income tax) at a rate of 20% on gains from the disposal of immovable property situated in Cyprus, including gains from the disposal of shares in companies that directly own such immovable property.

As of December 17, 2015, companies that indirectly possess immovable property in Cyprus and whose shares derive at least fifty percent of their market value from such property are liable to Capital Gains Tax. In the case of share sales, only the portion of the gain attributable to Cyprus-based immovable property is subject to CGT.

Disposal, for the purposes of CGT, covers explicitly exchange, leasing, gifting, relinquishing use of right, granting right to purchase, and any payments received upon cancellation of property dispositions. Exempt from these requirements are shares listed on a recognized stock exchange.

Exemptions

The following transfers of immovable property are exempt from CGT:

• Land and land with structures bought at market value (excluding swaps, donations, and foreclosures) from unrelated parties between 16 July 2015 and 31 December 2016 are exampt from CGT upon future disposition, subject to certain criteria.
• Transfers due to death
• Gifts provided by a parent to a kid, a spouse to a spouse, or between third-degree relatives
• Donations to a company whose shareholders are members of the donor’s family and who continue to be members of the donor’s family for five years from the date of the transfer
• Gifts made by a family-owned business to its shareholders, if the property was originally obtained by the business through a gift. The property must be retained by the recipient for a minimum of three years.
• Donations to charity
• Expropriations
• Exchange of properties, wherein the gain realized from the exchange was used to purchase the new property. The non-taxable gain is deducted from the purchase price of the new property, so deferring the payment of tax until the sale of the new property.
• Donation of property to a political party

Lifetime exemptions for individuals on Capital Gains Tax

The exemption for the disposal of a private residence applies if the property has been used as the individual’s primary residence for at least five years. The exemption for the disposal of agricultural land applies if the land is being sold by a farmer. The third exemption applies to any other disposal of real estate that does not qualify for the first two exemptions.

The maximum exemption that an individual can claim is €85,430, regardless of the combination of exemptions they claim.

0,4% contribution – payable by the seller

As of 22 February 2021, the Republic of Cyprus has implemented a 0.4% contribution on the sale proceeds of any immovable property situated in the country. The contribution of 0,4% is payable by the seller of the property and it is imposed on the sale proceeds from:

• the sale of immovable property situated in Cyprus; and

• the sale of shares in a company that owns immovable property situated in Cyprus, provided that the buyer takes control of the company (>50%). For the calculation of the contribution, the value of the shares equals the latest valuation of the immovable property by the Department of Lands and Surveys.

Rental Income

Rental income earned from immovable property situated in Cyprus is subject to income tax in Cyprus. The tax treatment of rental income depends on the status of the person receiving the income.

For individuals (whether resident or not), the gross rental income is taxed at the Cyprus personal income tax progressive band rates after a 20% exemption and certain allowable deductions. Such income is also subject to National health Contribution at the rate of 2,65% on the gross amount.

For companies (whether resident or not), the gross rental income is taxed at a flat rate of 12.5% after deducting tax-allowable expenses.

For Cyprus tax resident companies and individuals (who are also domiciled in Cyprus), there is an additional tax on rental income known as the Special Defence Contribution tax. This tax is imposed at a rate of 3% on the gross amount of the rental income after allowing for a 25% exemption on this income.