Taxes

An important consideration when buying a home in Cyprus, whether you’re a resident or non-resident, is taxation, which includes income tax, immovable property tax, capital gains tax, inheritance tax and value added tax.

Executive Summary

Immovable Property Tax payable to the Tax Department Immovable Property Tax (IPT) was reduced in 2016 to approximately a quarter of that in the previous year and is abolished in 2017.

Property Tax payable to Communities and Municipalities. This ‘local’ property tax has not been abolished and those with property on the island will continue to pay this ‘local’ tax, which is calculated on the Land Registry’s assessment of the 1980 value of the property.

Property Transfer Fees. The temporary reductions in Property Transfer Fees that that came into force in 2015 and applied to transfers that took place by 31 December 2016 was made permanent in July 2016.  

(a) If VAT was paid on the purchase price of the property, no Property Transfer Fees are payable.

(b) If VAT was not paid on the purchase price of the property, the Property Transfer Fees are reduced by 50%.

However if the Director of the Land Registry considers that the price stated on the contract of sale does not reflect the market value of the property at its date of purchase he may, at his discretion, charge the full Property Transfer Fees based on the Land Registry’s assessment of the market value of the property at its date of sale less the price stated on the contract of sale. (The Department of Lands and Surveys has an on-line Transfer Fees Calculator​​​​​​​​​​​​​​​​​​​​ here http://portal.dls.moi.gov.cy/en-us/Pages/CalculateTransferFees.aspx .)

Capital Gains Tax. The Capital Gains Tax concession introduced in mid-2015 that exempted those who purchased property after it came into force and 31 December 2016 from paying Capital Gains Tax regardless of when the property was sold has not been extended. As a consequence those who buy property in 2017 will be liable for Capital Gains Tax when they sell the property.

Stamp Duty. Stamp duty is calculated on the value of the purchase agreement and remains unchanged at the rate of:

€0 to €5,000 – zero

€5,001 to €170,000 – 0.15%

Greater than €170,000 – 0.2%*

* Capped at a maximum of €20,000.

Taxes

If you live permanently in Cyprus, you will have to pay Cypriot income tax on your worldwide earnings. However, the good news is that tax rates are some of the lowest in Europe, especially for those who choose to retire there. Cyprus also has double-taxation treaties with many countries, which are designed to ensure that income that has already been taxed in one country isn’t taxed again in another. Other advantages of living in Cyprus are that there are no inheritance, gift or wealth taxes.

Cyprus has traditionally been considered a favourable tax location, if not exactly a tax haven. In the ’70s, in an effort to attract ‘offshore’ companies to the island, the government introduced a package of tax incentives which ensured its success as a European financial centre. However, once it was agreed that Cyprus should join the European Union, its tax legislation had to come into line with EU requirements and comply with OECD initiatives against harmful tax practices. Consequently on 1st January 2003, the tax system in Cyprus underwent some major reforms, some of which temporarily weakened the country’s economy. The main changes in the tax legislation since 1st January 2003 are as follows:

Any person resident in Cyprus for more than 183 days per tax year (1st January to 31st December) is liable to pay tax there on their worldwide income. Non-residents are taxed only on income earned in Cyprus.
The terms ‘alien’ (foreigner) and ‘citizen of the Republic’ have been abolished as taxation terms and the distinction is now ‘resident’ and ‘non-resident’.
There are no longer exchange controls or restrictions on importing and exporting money. Financial and banking institutions are slowly being liberalised in line with EU regulations.

Cyprus tax law has now been harmonised with that of other EU countries, but its tax rates are still low. If you qualify or choose to be a tax resident in Cyprus, as opposed to your home country, you may save a considerable amount in taxes, depending on your circumstances and it’s imperative to take expert professional advice.

Local Authority Fees

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.

Municipality Tax 

As the registered owner of the property, you are required to pay an annual Municipality Tax, calculated on the market value of the property as at 1st of January 1980. Rates vary from 1‰ – 2‰. Municipality tax is payable to your local municipal authority.

Sewerage Tax 

As the registered owner of the property, you are required to pay an annual Sewerage Tax, calculated on the market value of the property as at 1st of January 1980. Rates vary from 3‰ – 7‰. Sewerage taxes are payable annually to your local sewerage board.

Author: Christos Nikolaou

BEng Mechanical Engineering, MSc Real Estate, ETEK Property Valuer, Register and Licensed Real Estate Agent.

Christos Nikolaou is the founder and Managing Director of Property Canvas, he holds a license as an Estate Agent from the Association of Real Estate Agents of Cyprus and he is a registered Property Valuer in the Technical and Scientific Chamber of Cyprus (ETEK). He is the author of our “Taxes” and is a certified advance negotiator.