Cyprus: capital gains and real estate taxes

Real Estate

Low taxes and simple bureaucratic procedures attract entrepreneurs and investors from all over the world to invest in the Republic of Cyprus. Cyprus’ reduced tax regime facilitates the expansion of business activities on the island. In the current article, I will present some useful information on capital gains and real estate tax schemes in Cyprus. The recent amendments to Law 119 (I) / 2013 and Law 120 (I) / 2013 aim to promote economic activity, attract more investors and further simplify the tax regime of Cyprus. According to the amendments to the laws mentioned above, in Cyprus no more capital gains are taxed. The only capital gains that are taxable are those associated with the disposal of real estate located in Cyprus. Following the amendments to Law 119 (I) / 2013 and Law 120 (I) / 2013, property owners will be taxed based on the value of their property.

Capital gains taxes:

Subject to certain exceptions (see list below), capital gains tax is levied on gains 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, which owns real estate owned (Reference 1). In summary, the net profit derived from the sale or transfer of real estate is taxed at the rate of 20%. The calculation of the net profit derived from the sale incorporates the inflation rate. Inflation is calculated based on the official retail price index. In addition, in accordance with the amendments to Law 119 (I) / 2013 and Law 120 (I) / 2013, the value of real estate is calculated following the corresponding provisions of the Real Estate Law.

List of exemptions:

  • Property transfer upon death.

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

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

  • Gift offered by a firm to its shareholders, since the particular property was originally donated to the company. In addition, the beneficiary 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 real estate values ​​that have been exchanged must be the same.

  • Profit derived from the sale of shares, listed on any Stock Exchange.

  • The transfers resulted from the reorganization.

Lifetime exemptions for individuals:

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

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

  • Any other sale of real estate: Gain (17,086 euros)

Real estate taxes:

In Cyprus, the annual real estate tax applies to all natural or legal persons who own real estate on the island, regardless of whether they are residents of the Republic of Cyprus or not. 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 estate tax is calculated based on the market value of the real estate as of January 1, 1980 and must be 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 in the event that the 1980 value of their property is less than € 12,500.

Relevant tax bands revised in 2013:

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

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

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

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

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

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

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

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

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

Note: Any registered owner whose property exceeds € 120,000 is required to file a Declaration of Real Estate Property (IR 301 and IR302) and pay the equivalent annual tax before September 30.

Important warnings:

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

Until title deeds are issued, the buyer is obligated 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 Sales Contracts, developers require buyers to pay property tax upon delivery of the property. In many cases, some developers charge buyers outrageous sums of money based on the sale price of the property. Also, in some cases, developers add late payment penalties to the total amount.

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

As a result, I recommend that buyers do NOT pay a developer any real property tax unless the developer:

  • Provides written proof of the amount of real property tax that the developer has paid to the Treasury for the land where the development was built.

  • Provide the buyer with a written statement that clarifies the buyer’s actions for the above-mentioned land.

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

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

Investing in Cyprus: having the right legal support

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

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

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

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