Acquisition of Property in Cyprus: Company Vs Individual

If you are planning to invest, or have already invested, in the Cyprus real estate market, there are numerous benefits of using a Cyprus company as part of a property ownership structure. These are summarised below:

Tax Efficiency

1. Tax on Rental Income:

Above a certain level of rental income, depending on the personal circumstances of the investor, it is advantageous to hold the property under a company rather than personally.

As a Cyprus tax resident individual, the gross worldwide rental income, after a 20% exemption and certain allowable deductions, is pooled along with all other taxable income and taxed in accordance with the Cyprus personal income tax band rates, the maximum rate being 35%. A non-tax resident individual will be similarly taxed but on Cyprus rental income only.

For a Cyprus tax resident company, gross worldwide rental income is pooled with all other taxable income and tax allowable expenses of the company and the resulting profit is taxed at the flat rate of 12.5%. Similarly, for a Cyprus non-tax resident company, only Cyprus rental income will be taxed.

2. Notional Interest Deduction (NID):

New equity injected into a company to buy a property in Cyprus, can reduce the overall tax burden of the company from the particular investment, by the amount of the notional interest, when the property is rented out. The NID cannot exceed 80% of the taxable profit derived from the new equity. This means that the NID may potentially decrease a company’s taxable profit by as much as 80%, bringing the effective tax rate down to 2.5% from 12.5%. Maximum tax benefit occurs in situations where a company is set up and funds are introduced in the form of equity and the main / only asset is the property purchased and rented out. The NID is calculated based on the 10-year Cyprus Government bond yield increased by 5% multiplied by the new equity injected.

NID does not apply in the case of an individual investing in a property with own funds.

3. Land Registry Transfer Fees:

There are no Land Registry transfer fees when properties are transferred within the context of a Cyprus company's share transfer.

When an individual buys a property which is not subject to VAT (i.e. used property), the Transfer fee to be paid is calculated as follows:

Property value: up to EUR 85.000 = 3%

Between 85.001 and 170.000 = 5%

Above 170.001 = 8%

Note: A 50% deduction is offered on the amount derived above.

Ease of Transfer

Transferring ownership of the property can be simplified by transferring company shares, rather than going through the legal process of transferring the property itself at the Land Registry. This can reduce transaction costs and administrative burden.

Estate Planning and Inheritance

Owning property through a Cyprus company can simplify estate planning, as shares can be easily transferred to heirs, potentially avoiding complex inheritance procedures via the Courts and taxes in other jurisdictions.

Asset Protection

Holding property through a corporate structure can provide a layer of asset protection, insulating the property from personal liabilities and claims against the individual owner.