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Property related taxes in Cyprus

Please be informed that the information presented below is indicative and has to be verified with a professional auditor or a relevant specialized service provider. Prime Property Group doesn’t hold the qualification of an auditing firm to deliver a 100% accurate tax related advice.

1.OWNERSHIP TRANSFER FEE (single payment, paid by the purchaser)

 

The fee is imposed by the Department of Land and Surveys in order to transfer the ownership of the property to the purchaser.

 

Rates:

Market Value Rate Fees Cumulative Fees
%
0 - 85.000 3 2.550 2.550
85.000 - 170.000 5 4.250 6.800
170.000 and over 8    

 

Notes:

  • No transfer fees payable for properties with VAT.
  • 50% reduction has been in effect for a considerable period of time.
  • In case of purchase of several units, the transfer fee is imposed on each unit separately.

 

If the purchase price is strongly reduced in relation to the market value, the department of Land and Surveys can decide to impose the transfer fee based on their estimation of the market value.

 

Calculation example:

 

Property Price: €500.000 (not subject to VAT)

 

Original transfer fee: €85.000 x 3% + (€170.000 - €85.000) x 5% + (€500.000 - €170.000) x 8% = €33.200

 

Transfer fee as of today (50% reduced): €33.200 / 2 = €16.600

 

In the case of free transfers of property between the following parties, the transfer fees are calculated on the value of the property as at 1 January 2013 at the following rates:

  • From parents to children 0%
  • Between spouses 0,1%
  • Between third degree relatives 0,1%

 

Exemptions from transfer fees

 

The following transfers are exempt from transfer fees:

  • Under a qualifying reorganisation
  • Under a qualifying Restructuring (note 10)
  • In the context of bankruptcy, liquidation, disposal of mortgaged immovable property by the lender
  • Transfers that are subject to VAT

 

2. STAMP DUTY (single payment, paid by the purchaser)

The sales/purchase agreement for the acquisition of immovable property (land and buildings) in Cyprus are subject to stamp duties, at the following rates:

 

Purchase price Rate Fees Cumulative Fees
%
0 - 5.000 0 0 0
5.000 - 170.000 0.15 255 255
170.000 up to 10.046.250 0.2    

 

The maximum amount of stamp duty payable is €20.000 per agreement.

Calculation example: Purchase Price: €500.000

  € 5.000 at 0 = 0
  €170.000 at 0,15% = € 255
remaining € 325.000 at 0,20% = € 650
TOTAL Stamp Duty payable € 905

 

3. VAT (Value added tax, single payment, paid by the purchaser)

Rates:

  • Standard rate 19%
  • Reduced rate 9%
  • Reduced rate 5%
  • Zero rate 0%

 

The standard rate of 19% applies to the supplies of all goods and services in Cyprus which are not subject to the zero rate, the reduced rate or are not exempt.

 

As from the 1st of October 2011, a reduced rate of 5% can be imposed on purchasing or construction of a dwelling in Cyprus, as long as the dwelling is used as the principal and permanent residence in the Republic by the beneficiary. The reduced VAT rate of 5% applies on the first 200 square meters of the buildable area of the dwelling. In cases of large families (minimum of four children) the total area of the dwelling is enhanced by 15 square meters per each additional child (over three children). A VAT advisor will be able to advise you exactly on how to calculate the reduction.

 

For the reduced rate to be in effect, certain terms and conditions must be met:

 

  • The property must be used as the primary and permanent residence of the applicant (for the next ten years).
  • The applicant has not acquired any other residence in Cyprus with a reduced VAT rate. 
  • The applicant must be an individual, over 18 years old, thus legal entities cannot are not eligible for the VAT reduction in question. 

 

Extension of the reduced VAT rate to citizens from third countries:

 

Reduced VAT rate of 5% may also be applied on the supply construction of residental properties to citizens of third countries (e.g. Russian Federation, USA, China, etc.) if the said residences will be used by the applicant as his/her principal and permanent place of residence whilst in the Republic.

 

Basic requirments for the applicant of 5% VAT to non-EU citizens:

 

  • Property must be used as main residence while in the Republic.
  • There is no time limit for non-European citizens to stay in the Republic. Thus, the reduced VAT rate of 5% may be applied even if the non-European buyer has not completed 183 days of residency in the Republic, so as to be considered tax resident in the Republic.
  • The reduced rate of 5% cannot be applied if the property is used for investment or leasing purposes or to exercise any other economic activity.

 

14% VAT refund procedure:

 

In case the property hasn't yet received the building permit, the purchaser has to pay the full VAT of 19%. As soon as the building permit has been received, the purchaser can apply for 14% VAT refund by providing the necessary documents to the VAT authority. As soon as the documents are collected, the application is submitted at the VAT authorities. It normally takes about a month to get the answer.

In case a VAT reduced property is disposed (sold out or rented out), the previously effected VAT refund must to be returned to the state, multiplied by the factor (10 – number of years in use)/10.

 

A VAT refund can be cancelled by returning the refunded amount to the state, in which case another VAT refund can be effected on another property in the future.

 

IMPORTANT NOTE: In order to get the approval of reduced, VAT the purchaser must not get possesion of the property before getting the approval from the VAT authorities.

 

Imposition of 19% VAT on the letting of immovable property for business purposes

 

As from 13 November 2017, VAT at 19% is imposed on the leasing and/or letting of immovable property to a taxable person for the purposes of carrying on taxable activities, commencing on/or after 13 November 2017.

 

The leasing of buildings used as residences remains an exempt transaction for VAT purposes. #

 

Imposition of 19% VAT on non-developed building land

 

As from 2 January 2018, VAT at 19% is imposed on the transfer of non-developed building land. Specifically, VAT is imposed on the transfer of ownership, transfer of indivisible land portion, transfer of ownership under a sale agreement or an agreement which specifically provides that the ownership will be transferred on a future date or by virtue of a leasing agreement with the right to buy non-developed building land which is intended for the construction of one or more structures in the course of carrying out a business activity.

 

4. IMMOVABLE PROPERTY OWNERSHIP TAX (annual tax, paid by the owner)

 

The tax has been abolished from the 1st of January 2017.

 

5. MUNICIPALITY TAX (annual tax, paid by the owner)

 

Depending on the size of your property, local authorities charge between €85 – €500 per annum for regular refuse collection, street lighting, sewerage and similar community services. Communal Services fees are payable to your local municipal authority.

6. CAPITAL GAINS TAX (single payment, paid by the seller)

The seller is liable to pay Capital Gains Tax at the rate of 20% from the NET profit.

The tax is not applicable for purchases registered from 16/07/2015 to 31/12/2016.

Deduction of the CGT payment is possible in case if there is a proof of following expenses:

  • Interest on loan to acquire property
  • Transfer fees on acquisition
  • Stamp duties
  • Legal fees
  • Immovable property tax
  • Inflation (see the inflation table)
  • Lifetime exemptions (see below)
  • Estate agent’s commission (but only if the estate agent is licensed by the Cyprus Real Estate Agents’ Association)
  • Accepted capital additions and improvements (renovations) - planning permission where necessary

Calculation example:

Notes:

  • Subject to conditions, land as well as land with buildings, acquired in the period 16 July 2015 up to 31 December 2016 will be exempt from CGT upon its future disposal subject to certain anti-avoidance provisions
  • Expenses that are related to the acquisition and disposal of immovable property are also deducted, subject to certain conditions e.g. interest costs on related loans, transfer fees, legal expenses etc
  • Lifetime Exemptions

Individual (not Company) can deduct from the taxable capital gain the following: €

Disposal of private principal residence (*): 85,430

Disposal of agricultural land by a farmer: 25,623

Any other disposal: 17,086

(’) must be able to prove that was the owner and use the property as primary residence for the last 5 years

The above exemptions are lifetime exemptions subject to an overall lifetime maximum of €85.430

IMPORTANT NOTE: Please be informed that the information presented above is indicative and has to be verified with a professional auditor or a relevant specialized service provider. Prime Property Group doesn’t hold the qualification of an auditing firm to deliver a 100% accurate tax related advice.

7. TAX FROM RENTAL INCOME

  • Every resident person having income from rents (whether the property is situated in Cyprus or abroad) is subject to income tax at the normal tax rates on 80% of the gross rent, reduced by capital allowances calculated at 3% on the cost of acquisition of the property (excluding the cost of land) and by any interest on loans to acquire the property.

A non-tax resident of Cyprus is subject to taxation only on rental income arising from the renting of an immovable property situated in Cyprus.

The gross rental income is also subject to special contribution for defence at 3% on the amount of the gross rental income reduced by 25%.

The rental income received by non tax residents and/or tax residents who are not domiciled of Cyprus are exempt from special defence contribution.

IMPORTANT NOTE: Please be informed that the information presented above is indicative and has to be verified with a professional auditor or a relevant specialized service provider. Prime Property Group doesn’t hold the qualification of an auditing firm to deliver a 100% accurate tax related advice.

8. INCOME TAX, DIVIDENT TAX AND OTHER TAXES

  • The Personal Income Tax rates are as follows

  • Dividends received by Cyprus tax residents is exempt from income tax but they are subject to special contribution for defence at 17%.

Dividends received by tax residents who are not domiciled of Cyprus are exempt from the special defence contribution, as well.

  • Interest income is generally exempt from income tax but it is subject to special contribution for defence at 30%. However, any interest received in the ordinary course of business, including interest closely connected with the carrying on of the business is considered business profit and is subject to income tax at the normal rates described above.

Interest received by tax residents who are not domiciled of Cyprus are exempt from the special defence contribution, as well.

  • Pensions are subject to income tax at the normal tax rates described above. However, Pensions from overseas may be taxed at a flat rate of 5% after the allowance of €3.420The following payments are deducted from the taxable income:
  • Subscriptions to trade unions or professional bodies
  • Donations to approved charitable organisation (up to €300 without receipts).
  • The following personal allowances are deducted from taxable income
  • Contributions to the Social insurance Funds
  • Life Insurance premises (restricted to 7% of the insured amount)
  • Contributions to approved provident and pension funds
  • Contributions to approved medical or other approved funds

(restricted 1,5% of the remuneration, based on circular issued on 20/7/15)

9. A SUMMARY ON TAX RESIDENCY

Individuals

Brief summary of the major provisions of the Cyprus Income and Special Contribution for defence

  • An individual is a tax resident of Cyprus if he/she is physically present in Cyprus for periods exceeding 183 days in total in a tax year (a tax year is the same as calendar year).

183-day and 60-day rule

The personal allowances are limited to 1/6 of the taxable income before these allowances.

  • A tax credit against the Cypriot income tax is available for any taxes withheld abroad on the employment/salary income, rental income, dividends and interest.
  • Capital gains tax at the rate of 20% is payable on profits derived from the disposal of immovable property (land and buildings) situated in Cyprus including shares of companies not listed on a recognized Stock Exchange which directly or indirectly own immovable property situated in Cyprus.

IMPORTANT NOTE: Please be informed that the information presented above is indicative and has to be verified with a professional auditor or a relevant specialized service provider. Prime Property Group doesn’t hold the qualification of an auditing firm to deliver a 100% accurate tax related advice.

Effective from the tax year 2017, an individual can be a tax resident of Cyprus even if he spends less than 183 days in Cyprus provided that the individual satisfies all the conditions described below within the same tax year (1 January – 31 December):

  • does not spend more than 183 days in any other country;
  • is not a tax resident of any other country;
  • spends at least 60 days in Cyprus;
  • maintains a permanent home in Cyprus (owned or rented);
  • carries on a business in Cyprus, is employed in Cyprus or holds an office in a Cyprus tax resident person at any time during the tax year.

If the employment/business or holding of an office is terminated during the year, then the individual would cease to be considered a Cyprus tax resident for that tax year.

From July 2015, the Special Contribution for defence Law has been amended introducing the non-domicile status. 

According to the amendment of the Law and the non-domicile rules introduced, an individual who is a tax resident of Cyprus under the provisions of the Income Tax Law (183 days rule mentioned before) BUT he is “not-domiciled” in the Republic of Cyprus, will be exempt from special contribution for defence on interest, dividends and rent.

  • An individual who is tax resident in Cyprus is taxed on income accruing or arising from sources both within and outside the Republic.

An individual who is not tax resident in the Republic, is taxed on income accruing or arising only from   sources within the Republic.

IMPORTANT NOTE: Please be informed that the information presented above is indicative and has to be verified with a professional auditor or a relevant specialized service provider. Prime Property Group doesn’t hold the qualification of an auditing firm to deliver a 100% accurate tax related advice.

10. TAXES FOR COMPANIES

Doing Business through the Cyprus tax regime

  • Some general advantages of the Cyprus tax regime for corporate entities are include:
  • One of the lowest corporate tax rate in EU which is 12,5%
  • Exemption of dividend income from tax (subject to conditions)
  • Exemption of profits realized on disposal of securities irrespective of whether the profits and gains are considered to be of a revenue or capital nature.

Securities, as defined in the law, include shares, bonds, debentures, founder’s shares and other securities of companies or other legal persons and options over such securities.

In case of disposal of shares by a company tax resident of Cyprus, no tax should arise provided that the company of which the shares are disposed does not own directly or indirectly immovable property in Cyprus.

  • No withholding taxes on dividends and interest paid to non tax residents. Also, no withholding tax is imposed on royalties paid from Cyprus in respect of intellectual property exploited outside Cyprus.
  • A Cyprus company may be entitled to a notional interest deduction (NID) on the introduction of a new equity up to 80% of its taxable income decreasing the effective corporate tax rate to 2,5% (subject to conditions)
  • Interest deductibility. Interest incurred by a Cypriot company for the acquisition of fixed assets used in the business for the generation of taxable income is tax deductible.
  • Cyprus does not have any thin capitalization rules or minimum capitalization requirements.
  • Cyprus has an Intellectual Property (“IP”) regime in place which is fully compliant with international developments relating to the tax treatment of IP income and recommendations under the OECD’s BEPS project.

Only 20% of the net profits derived by a Cypriot company from the exploitation of its qualifying IP (subject to conditions) is subject to tax at the corporate income tax rate of 12.5%.

  • Profits of a permanent establishment on a Cypriot tax resident company maintained abroad are generally exempt from tax in Cyprus (subject to conditions).
  • Foreign exchange neutrality. Cypriot companies are exempt from taxation on foreign exchange (FX) gains, with the exception of FX gains arising from trading in foreign currencies and related derivatives.
  • A wide network of tax treaties, more than 60 countries;

Unilateral tax credit relief. Relief for taxes paid abroad is in the form of a tax credit if the respective income is subject to tax in Cyprus. The relief is given unilaterally irrespective of the existence of a tax treaty. Where a treaty is in force, the treaty provisions apply if more beneficial.

IMPORTANT NOTE: Please be informed that the information presented above is indicative and has to be verified with a professional auditor or a relevant specialized service provider. Prime Property Group doesn’t hold the qualification of an auditing firm to deliver a 100% accurate tax related advice.

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