If New Year has inspired you to finally purchase a property in Cyprus, you’ll need to know how much to set aside to cover everything from stamp duty now to capital gains tax in the future.
Buying your dream home in Cyprus is an exciting prospect, but put the sun, sea and sand to the back of your mind for one moment. There are other less enticing matters that must be addressed to make it all a reality in the first place, not least that fiscal factor that follows you around like a shadow: taxes.
A recent amendment to the islands VAT law provides that a reduced rate of 5% may be applicable to the acquisition of new residential properties
Let’s take a look at how property-related taxes on the island will impact overseas buyers over the next 12 months.
The amount of tax payable to communities and municipalities is determined by the Land Registry’s assessment of the 2013 value of the property.
Property transfer fees
The Director of the Land Registry will assess the price stated on the contract of sale. If they do not believe it reflects the market value of the property on the date of purchase, they may choose to charge full property transfer fees. The amount will be determined by the market value of the property at its date of sale minus the price stated on the contract of sale. You won’t be required to pay transfer fees if VAT was paid on the purchase price of the property.
Capital gains tax
You are liable to pay 20% capital gains tax on any profit you make from the disposal (sale) of any immovable property (assuming it was acquired after 1st January 1980), even if it is your main residence. Taxable capital gain is calculated as follows: gross selling price minus acquisition costs and improvement costs.
Taxpayers can claim a deduction from capital gains once during their lifetime. The amount deductible varies depending on the property seller’s circumstances and the type of property.
• Up to €85,430 if the disposal relates to a private residence.
• Up to €25,629 if the disposal is made by a farmer and it relates to agricultural land.
• Up to €17,086 on any other disposal.
Under the law, certain disposals are not subject to capital gains tax, such as:
• Transfers of property arising on death.
• Gifts made from a parent to a child or between husband and wife.
If you are ready to buy in Cyprus, you’ll have a few financial matters to sort out. For advice on currency, download the Property Buyer’s Guide to Currency.
Value added tax
A standard value added tax (VAT) rate of 19% has been charged on the first purchase of property since Cyprus joined the EU in 2004. The same amount is charged on undeveloped land intended for the construction of buildings that will be used to conduct business activity.
A recent amendment to the island’s VAT law provides that a reduced rate of 5% may be applicable to the acquisition of new residential properties, provided:
• The property is the primary and permanent residence of the applicant for the next ten years.
• The applicant has not purchased other properties in Cyprus with a reduced VAT rate.
• The applicant is over 18 years old.
The reduced 5% rate is applied on the first 200 square meters of the property, as set out in the official architectural plans. VAT is imposed at the standard rate (19%) on the remaining square metres.
Don’t save thousands on reduced taxes in Cyprus and then get ripped off on the price because you’re a starry-eyed foreigner! Read our guide to getting a fair deal on your property price: How to Negotiate Abroad.
Stamp duty, which is calculated on the value of the purchase agreement, is calculated as follows:
• €0 to €5,000 = zero
• €5,001 to €170,000 = 0.15%
• Over €170,000 = 0.2% (capped at €20,000 max)