Property taxes in Cyprus

In Cyprus, any real estate transaction, whether it is a purchase, sale or lease, is accompanied by mandatory payment of taxes. The country’s tax legislation covers all market participants, regardless of their resident status. This means that both residents and non-residents are required to fulfill tax obligations related to the ownership and management of real estate.

In 2024, Cyprus is experiencing some changes in tax policy. In particular, new measures have been introduced to optimize taxation. In this article, we will analyze in detail the taxes on real estate in Cyprus and the taxation policy of the country as a whole. 

Cyprus Tax Residency

The key criteria for determining tax residency in Cyprus are the rules of 183 days and 60 days. The first is an internationally recognized standard for determining tax residency. According to it, a person is considered a tax resident of Cyprus if he spends at least 183 days in the country in a calendar year. In this case, all his income, even those received outside Cyprus, is subject to taxation.

Since 2017, an alternative 60-day rule has been introduced, which allows you to obtain tax residency in Cyprus for a shorter period of residence. To do this, it is enough to have economic interests in Cyprus (for example, real estate or business) and no tax resident status in another country.

The resident status has a number of advantages, the main of which are benefits. For example, residents are exempt from capital gains tax on the sale of shares (if these shares are not related to real estate in Cyprus) and can benefit from a low tax on dividends and interest. But the most important thing is a significant benefit when buying the first 130 m2 of living space, reducing VAT from such a purchase by almost four times. Taxes in Cyprus for non-residents are basically the same, but non-residents are taxed only on income earned in Cyprus.

Taxes on the purchase of residential real estate in Cyprus

The purchase of real estate in Cyprus is accompanied by the payment of taxes and fees such as VAT, stamp and title fees. Some of them are quite significant, such as VAT with an interest rate of 19%. However, buyers can claim benefits that reduce the tax burden, which allows them to save on the same VAT and reduce the rate to 14%.

How to buy a property in Cyprus

Value added tax (VAT)

VAT is a mandatory tax when buying new residential real estate in the country. The basic VAT rate in Cyprus for its purchase is 19%. If we are talking about the first residential property that will be used by the buyer as the main place of residence, a reduced VAT rate of 5% is applied. In order to confirm the primacy of the purchased property, the buyer must provide proof that he does not own another property in Cyprus, which is used as the main place of residence.

In 2023, Law V. 42(I)/2023 introduced important changes to the Cyprus tax legislation in the field of real estate, affecting the preferential VAT rate:

• The reduced VAT rate of 5% applies only to the first 130 m2 of living space. The value of the property should not exceed €350,000, and the total value of the transaction should not exceed €475,000.
• For real estate with an area of more than 130 m2, but less than 190 m2, the first 130 m2 are taxed at a reduced rate of 5%, and the remaining area is taxed at a standard rate of 19%.
• If the value of the property exceeds €475,000 or its area exceeds 190 m2, the reduced rate does not apply, and the entire area of the property is subject to VAT at the standard rate of 19%.

Example of VAT calculation:

Stamp duty

Stamp duty is charged to the buyer upon signing the contract of sale of real estate. If it is not possible to pay it immediately, then you can do it within thirty days after signing the contract. The stamp duty rate varies depending on the value of the property:

• The first €5,000 of the transaction value is exempt from taxation.
• 0.15% — for the amount from €5,001 to €170,000.
• 0.20% — for an amount over €170,000.
• The maximum amount of stamp duty is limited to €20,000 per document.

For real estate rental contracts, a fixed stamp duty rate may be applied, which depends on the duration of the lease and can range from €1.5 to €5 for each rental year.

An example of calculating stamp duty:

Title fee

The title fee, or transfer fee, is charged by the Cyprus Department of Land Resources. His rate is quite flexible and directly depends on the value of the property:

• 3% — for the first €85,000 of the property value.
• 5% — for the amount from €85,001 to €170,000.
• 8% — for an amount over €170,000.

An example of calculating the title fee:

The possibilities of reducing the amount of tax

In Cyprus, there are various benefits and schemes to reduce the tax burden when buying real estate. As already mentioned, you can get a benefit in the form of a reduced VAT rate in Cyprus of 5% for the first 130 m2 when buying your first residential property. 

Exemption from the title fee is possible if the purchase of real estate is carried out within the framework of certain government incentive programs, for example, for foreign investors. However, in such cases, the future owner is restricted from selling or changing the terms of ownership of the property for a certain period (usually 3-5 years).

You can avoid paying stamp duty if the purchase of real estate is subject to value added tax (VAT). Most often, this applies to primary housing, which is necessarily subject to VAT. In other cases, stamp duty is not charged if:

• The transaction is carried out through government or charitable organizations, and the transaction itself is considered socially useful.
• The transaction is carried out under government subsidy or social security programs.
• If the document or transaction is of particular importance for the public good.

In the case of purchasing a house, villa or apartment in Cyprus for several persons (spouses or relatives), the taxable amount of each share will be reduced, which means that the tax percentage will also be reduced. This method is absolutely legal and allows you to save money when buying real estate in Cyprus.

Income taxes on the sale of residential real estate

When selling residential real estate in Cyprus, it is important to take into account several taxes that can significantly affect the final amount of the transaction. The first is the Capital Gains Tax (Capital Gains Tax), and at the same time the main item of expenditure. The second is the fee for the transfer of immovable property (Immutable Property Transfer Levy, IPTL), and it is not so significant.

Capital Gains Tax is levied on the net profit earned from the sale of real estate. It is 20% of the taxable profit and is calculated as the difference between the sale and purchase price of real estate, adjusted for inflation. Expenses for real estate improvements, such as major repairs and costs for legal services and realtors’ commissions, are also deducted from the profit.

In this case, the taxpayer has the right to be exempt from paying tax. The first €17,086 of profit per owner is tax-free. If the property has been owned by the seller for more than 5 years and this is the first sale of real estate in Cyprus, then the limit increases to €85,430. That is, if the property was purchased for €100,000 and sold for €117,086, then you do not need to pay tax, and after five years, €185,430 is not taxed.

Capital gains tax in Cyprus is not applied when selling agricultural land by farmers and when transferring property as an inheritance or gift to close relatives.

Fee for the transfer of immovable property (Immutable Property Transfer Levy, IPTL) It was introduced in 2021 and represents a fee of 0.4% of the value of the sale of real estate. The fee is charged at each sale of the property and is paid by the seller. It applies regardless of the type of property and whether the buyer is a resident of Cyprus. However, for transactions subject to VAT, IPTL is not charged. 

In the case of transactions that are not subject to VAT, it is envisaged to reduce the IPTL by 50% of the total amount of the fee in a situation where the object is bought on the secondary market and VAT has already been paid at the first sale of this property. 

Taxes on inheritance and donation of residential real estate

Inheritance tax has been abolished in Cyprus since 2000. Currently, heirs who receive real estate by right of inheritance are not required to pay tax on the transfer of property itself. However, there are associated administrative fees and costs associated with this operation.

The situation with giving is a little different. In this case, the transfer of real estate between the next of kin, such as parents, children and spouses, is exempt from taxes. The exemption applies only to relatives up to the third degree of kinship. The donor or the donee is obliged to pay a fee for the transfer of ownership (title fee). The amount of the fee depends on the value of the property, but when donating it can be significantly reduced or released depending on the degree of kinship. Other expenses may include:

• Notary expenses. For drafting and certifying a donation or inheritance agreement. The cost may vary depending on the complexity of the transaction, but usually fits in the range from €300 to €1000.
• Checking debts and restrictions. Before registering a new owner, it may be necessary to check for debts or property restrictions. As a rule, such a check costs €100-200.
• Legal services. For the correct execution of all documents, you may need the help of a lawyer, whose average cost of services ranges from €500 to €2000, depending on the amount of work.
• Property valuation fees. In some cases, a real estate valuation is required to determine its market value. This requires an appraiser — in Cyprus, his services will cost about €200-500.
• Fees for the reissue of documents. Making changes to title documents or other official documents will cost €100-200.

Cyprus real estate market overview: the cost of housing, popular areas for investment and conditions for obtaining permanent residence

Taxes on the rental of real estate

When renting out real estate in Cyprus, the owner is required to pay several types of taxes. They depend on the type of lease, the amount of income and the status of the taxpayer. The main one is Income Tax: in Cyprus it is progressive, which means an increase in the interest rate in proportion to the income received. The tax is applied after deducting all additional expenses such as repairs and depreciation.

Special Defense Contribution (SDC) It is charged only to residents of Cyprus. It applies to both residential and commercial real estate for rent. Its rate in 2024 is 3% of gross rental income. The tax is withheld independently by the landlord and paid quarterly.

Benefits or even full exemption from SDC payments are possible if the property is rented to family members, for example, spouses, children or parents.

Other types of taxes and fees on real estate

In 2017, the Cypriot government issued a decree on the complete abolition of the annual property tax. Instead, the government is focusing on improving the effectiveness of existing taxes and fees, combating tax evasion, and developing new ones. 

One of the most discussed projects now is the “green” tax: it will be applied to fuels used in sectors of the economy that are not part of the EU Emissions Trading System. The possibility of introducing a water tax is also being considered due to the depletion of local freshwater sources.​ Other types of taxes and fees include:

• Municipal fees. They include payments for various utilities such as garbage collection, street lighting, and infrastructure maintenance. Such fees are levied by local municipalities and applied to property owners. Their sizes may vary significantly depending on the location of the property and the decisions of a particular municipality. For example, the fee for garbage collection can range from €80 to €300 per year. Fees are usually calculated based on the area of the property, its type (residential or commercial), as well as the level of services provided in the region. Some municipalities may also charge additional fees for keeping parks and public spaces clean.
• The fee for granting building permits. It is charged for the issuance of permits for the construction of new buildings, reconstruction or expansion of existing real estate. The process of obtaining a permit includes checking the compliance of the design documentation with building codes and regulations. The amount of the fee for a building permit ranges from 1% to 3% of the total cost of construction or reconstruction.
• Fees for connection to communications. It is used when connecting real estate to utility networks such as water supply, gas, electricity and sewerage. The cost of connecting to communications may vary depending on the type of property and location. For example, connecting to the electric grid can cost from €500 to €2000. The amount of the fee depends on the distance to the existing networks and the complexity of the connection. For new buildings in remote areas, costs may be higher, as work may be required to lay new pipes or power lines.
• Annual license fees for the operation of commercial real estate. They are charged to owners of commercial real estate for the right to conduct business in the municipality, including payments for permits for certain types of activities, such as trade, provision of services or advertising on the facade of a building. The amount of licensing fees depends on the type of business and its location. For example, for retail stores in tourist areas, the fee can range from €100 to €1,000 per year, depending on the type and size of the business, as well as the category of license required for its operation. 

But this is all about taxes in Cyprus for individuals. The country also has a separate corporate tax for legal entities. Companies must file annual tax returns using reliable financial statements no later than December 31. The standard rate is 12.5% of the company’s global income and in Cyprus. The tax also applies to the subsidiary property of the company.

Author

Mikhail Konon is a copywriter

I write informative articles about real estate, investments, job search and taxes.

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