Acquisition of Property in Cyprus

Acquisition of Cyprus property by Europeans

European nationals including companies whose shareholders are European nationals are allowed to purchase any type of Cyprus property without any restrictions.

Acquisition of Cyprus property by non-Europeans

The acquisition of immovable property in Cyprus by non-Cypriots is regulated by the Immovable Property Acquisition (Aliens) Law and the Directives of the Central Bank of Cyprus.

According to the above law, an “alien” is defined as any person who is not a citizen of the Republic of Cyprus including:

• a company controlled by aliens.

• a foreign company and

• a trust, the beneficiary of which is an alien.

On 12/12/2012, the Ministry of Interior announced that third-country nationals (aliens) may acquire more than one unit of immovable property in Cyprus, with the aim to invite investment into Cyprus (from third countries) and to strengthen the licensing policies regarding migration to Cyprus. According to the Law, third country nationals are imposed with certain restrictions while purchasing immovable property in Cyprus. These are as follows:

• A building plot or a piece of land not exceeding 4014 m2 for the construction of a house thereon to be used as private residence OR

• Two residential units in the same building development on condition that such units are in proximity (horizontally or vertically) where such units relate to a house or flat where unification into one unit is possible OR

• One residence unit and one shop, the latter not exceeding 100 m2 OR

• One residence unit and one office, the latter not exceeding 250 m2.

In the event of a married couple, the above restrictions will apply to the couple as if the couple is a single applicant (one entity). It should be noted here that in case of a married couple, only one permit will be granted.

Permission must be sought from the Council of Ministers by written application, which must be submitted by the non-EU citizen purchaser after the contract of sale is signed.

Permission is given as a matter of course to all bona fide purchasers.

In certain cases, however, the Council of Ministers may grant the approval for the acquisition of property for commercial purposes if the project is considered beneficial to the Cyprus economy in general (e.g. in terms of tourism or employment).

A company owned by non-Europeans may also acquire premises for their operations (with no limit on the extent) and for the residence of their foreign employees, provided they maintain a fully-fledged office and the residence to be registered on the name of the employee.

On a future disposal of the property the whole amount of the sale proceeds can be exported from Cyprus (after the tax obligations have been settled) and no exchange controls will be applicable.

Taxes and charges applicable to Cyprus immovable property

The following are the main taxes arising on the acquisition, ownership, and disposal of Cyprus situated immovable property. The taxes described apply to both natural persons and entities.

A. Taxes arising on acquisition of properties.

• Transfer fees

Upon the registration of the property to the Land Registry Office, the purchaser must pay transfer fees

based on the value of the property as assessed by the Land Registry Office:

Reduction or exemption from transfer fees

Transfers of immovable property are exempt from transfer fees, if the transfer relates to a transaction that is subject to VAT. In cases of transactions that are not subject to VAT, the legislation provides for an exemption of 50% of the transfer fees.

• Stamp Duty

• Value Added Tax (VAT)

The transfer of used buildings is not subject to VAT. Newly erected buildings (and the associated land) are subject to the standard VAT rate of 19%.

A reduced VAT rate of 5% is applied upon purchase or construction of a house or flat to be used as a private main residence.

The reduced rate applies for the first 200 m2; for the remaining square metres, the standard rate of 19% applies.

On 16 June 2023, VAT Law was amended in relation to the private main residence as follows:

5% VAT applies for:

• The first 130 m2 for a value up to €350.000

• Subject to the total value not exceeding €475.000 and total size not exceeding 190 m2

The acquisition and/or construction of a new residence which exceeds 190 m2 and/or €475.000 maximums will be subject to 19% VAT for the whole value.

Transitional provisions

The new legislative framework does not apply for buildings for which a planning permission has been obtained or an application for planning permission has been submitted until 31st of October 2023, and the relevant application for the 5% VAT rate has been submitted within 3 years from the date of the new law (i.e. by 15/06/2026)

Any residences meeting the transitional provisions will be eligible to apply for the 5% VAT reduced rate under the regime applicable up to 15/06/2023 (i.e. 5% for the first 200 m2 with no value or size maximums)

The reduced rate also applies to properties acquired by individuals who do not ordinarily reside in Cyprus but acquire property to be used as their residence while in Cyprus.

As of 2 January 2018, the sale of undeveloped building land by a person, intended for the erection of one or more fixed structures, is subject to VAT at the standard rate when the supply is carried out as part of that person's economic activities.

As of 13 November 2017, the leasing of immovable property to a taxable person for the carrying out of taxable business activities is subject to VAT at the standard rate (19%)

B. Taxes arising regarding ownership of properties.

Taxation of Rental Income

• Income Tax

Rental income earned from immovable property situated in Cyprus, received by a non-Cyprus tax resident person (company or individual), is subject to Income Tax as follows:

Individual: The gross rental income earned from Cyprus properties, after a 20% exemption and certain allowable deductions, is pooled along with all other Cyprus taxable incomes (if any) and taxed in accordance with the Cyprus personal income tax progressive band rates.

Company: Gross rental income earned from Cyprus properties is pooled along with all other Cyprus taxable incomes (if any) and after deduction of tax allowable expenses the resulting profit is taxed at the flat rate of 12,5%.

• Special Defense Contribution

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

• National Health Insurance (NHS) Contribution

Rental income is subject to NHS contribution at 2.65%.

C. Taxes arising on disposal of properties.

• Capital Gains Tax (CGT)

Capital gains tax is payable by the seller and is imposed at the rate of 20% on companies and individuals on gains arising from the disposal of immovable property situated in Cyprus including gains from the sale of shares in a company which owns immovable property situated in Cyprus (excluding shares listed on any recognized stock exchange). The chargeable gain is the sale price less the greater of the cost or the market value on 1st January 1980 as adjusted for indexation allowance and after allowing for certain expenses.

The above exemptions are given once only and not for every disposal. There is a maximum of €85.430 if an individual claims a combination of the above.

Exemption from CGT: Profit on the sale of Cyprus property acquired between 17 July 2015 and 31 December 2016 is exempt from CGT provided certain conditions are met.

• Contribution of 0.4% on any disposed immovable property

As from 22 February 2021, upon the disposal of any immovable property situated in the Republic of Cyprus, there is a 0.4% contribution imposed on the value of the sale proceeds and will have to be paid by the seller.

In the case of the disposal of shares in a company owning such immovable property, the contribution will be applied to the value of the immovable property in the transaction. This applies only if the buyer also takes control of the said company. The value of the immovable property is taken by the Department of Lands and Surveys based on the latest valuation available by the Department.

D. Other taxes

Cyprus does not have any wealth tax nor any succession taxes such as inheritance tax.

Immigration programs for non-Europeans

Non-Europeans can travel or reside in Cyprus without the need of having a visa according to the Permanent Residence Permit (PRP) program - Regulation 6(2). Amongst the various conditions for this program, it is a pre-requisite to acquire a property in Cyprus at a value of at least €300,000.