Tax benefits of purchasing residential real estate in Cyprus

By Eleni Drakou 

Cyprus real estate market is recording a significant increase in the number of sales of immovable properties and property prices. 

In October 2023, the Central Bank of Cyprus (CBC) reported a continued increase in Cyprus’ House Price Index (HPI) annually in all country districts. Property prices continue to rise, both for houses and for apartments. Several factors explain this increase, mainly the notable demand by domestic and foreign buyers, construction material prices, the limited supply of new housing units, and the relocation of international companies. 

As per the Cyprus Land Registry Office, real estate sales transactions increased annually during the second quarter of 2023. The number of sales contracts during this period reached its highest level in the last 15 years. The increased demand for immovable properties is reflected in the 26.5% acceleration of these contracts, led mostly by foreign buyers, while domestic buyers maintain the largest market share. 

Buyers of residential properties in Cyprus pay taxes, irrespective of whether they are Cypriot citizens, citizens of another European Union (EU) member country, or a non-EU nation. Moreover, the taxes are payable regardless of whether the buyer is a resident of Cyprus or not, or if it is a physical person or a legal entity. 

TAXATION FOR PERSONS OWNING RESIDENTIAL PROPERTY IN CYPRUS 

Buyers of residential real estate can benefit from several tax advantages. To begin with, unlike other jurisdictions, Cyprus does not charge a wealth tax, gift tax, inheritance, or estate tax.  

Municipality fees 

At the same time, since the abolition of the Immovable Property (IMP) Tax on Jan. 1, 2017, owners of properties are not subject to immovable property tax but to local fees annually, which are paid to the municipality of the property’s location for community services (such as refuse collection, sewerage, and cemetery fees). 

Stamp duties

These are paid to the Tax department within a 30-day deadline from when the sale contract or the assignment agreement is signed. The stamp duty varies based on the property purchase price using the following formula:  

Cyprus property tax formula

Lodging fees 

Lodging duties are paid at the Land Registry Office when lodging a document.  

For lodging a sales contract, 50 euros is paid at the Land Registry Office. In cases where a separate title deed has not been issued yet for the property, an assignment agreement is executed between the seller and the buyer, whereby the seller, as the current registered owner of the property, assigns all their rights deriving from the first contract of sale to the new buyer.  

The lodging fees of the assignment agreement are calculated as 0.5% of the sale price as determined in the sale contract or on the amount that is determined in the assignment agreement, whichever is the higher of the two amounts, with a minimum fee of 50 euros and a maximum fee of 3,000 euros.  

If the assignment is executed between relatives up to the third degree of kindred or between husband and wife, 20 euros are paid as a lodging fee. Unlike stamp duties, which are imposed irrespective of whether the property is new or resale, certain taxes are imposed only on new residential properties. VAT would be applicable in such cases, whereas transfer fees would be charged for the resale of residential properties. 

TAXES PAID IN CASE OF NEW RESIDENTIAL PROPERTIES 

New properties sold for the first time are subject to Value Added Tax (VAT), at the standard VAT rate of 19%, added to the purchase price. 

Under certain conditions, a reduced VAT rate of 5% is applied to the purchase or construction of a property after submitting a relevant application. The application can be submitted for a property, which will be used as the applicant’s primary and permanent residence in Cyprus. The application should be submitted at any stage during the construction of the residence and before the property’s possession is delivered to the applicant. 

The reduced VAT rate application can be submitted by an adult physical person. The application includes a declaration confirming that the applicant has not acquired another residence in Cyprus as their primary and permanent residence with the reduced VAT rate. 

The VAT law was amended earlier this year, in June 2023. As per the amended 42(Ι)/2023 law, the reduced VAT rate of 5% shall apply to the first 130 square meters of a property (considering the architectural plans -building coefficient). In addition to this, the reduced VAT rate of 5% shall be applicable up to a total cost of 350.000 euros, provided that the property does not exceed 190 square meters of buildable area and a total cost of 475.000 euros. 

As such, properties that cost over €475.000 and have a total buildable area of over 190 sqm will be subject to the standard VAT rate of 19% on the entire purchase or construction price. If, on the other hand, the buildable area is less than 190 sqm but over 130 sqm, the reduced VAT rate of 5% will apply for the first 130 m2, and the standard VAT rate of 19% will apply for the rest of the buildable area, provided that the property’s cost does not exceed 475.000 euros.  

The reduced VAT rate is granted provided the applicant will use the residential property as its primary residence for at least ten years. If, for any reason, the applicant ceases to use the property as such within this period, they must notify the Commissioner of Taxation within 30 days and settle the difference between the standard VAT rate and the reduced VAT rate attributable to the remaining period of ten years. 

Also, new applications are subject to the criteria introduced by the amending law unless the property has secured a planning permit or an application for a planning permit was submitted before Oct. 31, 2023, and further provided that the application is submitted before Jun. 16, 2026 (within three years from the enforcement date of the amending law). 

The applicant should be a physical person over 18 years of age; legal entities and minors are exempt. Also, they must declare they have not secured another residence in Cyprus being used as the primary and permanent living place with the reduced VAT rate. 

Transfer fees 

The Land Registry Office applies these fees upon transferring the property’s title deed from the seller to the buyer. Upon settling this amount, the property’s new title deed is issued whereby the buyer's name is stated as the property’s registered owner. 

Properties subject to VAT are exempt from transfer fees. Also exempt from transfer fees are the transfer of properties due to inheritance and parental gifts to children. 

In cases where transfer fees apply, the below rates are applicable, with a reduction of 50%:

When more than one buyer purchases the property, the price is divided by the number of buyers, reducing the total amount of the transfer fees to be paid. 

Overall, taxes associated with purchasing immovable properties in Cyprus are straightforward. However, interested buyers should seek specialist advice to confirm compliance with the Cyprus taxation policy and the applicable regulations.

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