Since 2013, Cyprus has been removed from the list of offshore jurisdictions, but it remains attractive to foreign investors interested in taxation issues. In addition to investors, people from all over the world buy property in Cyprus for their own residence, thanks to the favorable climate and comfortable living conditions.
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Taxes Charged When Purchasing Property in Cyprus
VAT (Value Added Tax)
Since January 13, 2014, the VAT rate in Cyprus is 19%. VAT is only charged on the purchase of new property directly from the developer. Resale properties are not subject to VAT.
If the buyer does not own any other property on the island and the new property is purchased for primary residence, the first 130 square meters of the property are subject to a reduced VAT rate of 5% (this benefit can be used only once).
Documents to reduce the VAT rate must be submitted during the purchase process. Renting out the property with a reduced VAT rate is not allowed.
Changes to the VAT Reduction Program
Effective November 1, 2023, changes to the VAT law have been implemented, affecting the reduced rate. Now, the reduced VAT rate of 5% applies to the first 130 square meters of primary residence property purchases or constructions, whereas previously the benefit extended to 200 square meters. The benefit is limited to properties worth up to €350,000, with the total property value not exceeding €475,000. Additionally, the property area must not exceed 190 square meters, but only 130 square meters are subject to the reduced VAT rate.
Transfer Fees
The property transfer tax (Transfer Fees) is not payable if VAT is applied to the purchase. The tax is calculated based on the agreed property value or the value determined by the Cyprus Land Registry Department. The rate varies from 1.5% to 4%, depending on the property price.
For properties valued up to €85,430, the transfer fee is 1.5%. For properties between €85,430 and €170,860, the rate is 2.5%. For properties above €170,860, the rate is 4%.
For example, if the property value is €145,231, the tax amount for the first €85,430 would be €1,281.45 (1.5%), and for the remaining €59,801, it would be €1,495.02 (2.5%), totaling €2,776.47 (1.91%). If the property is registered to two or more people, the tax amount is reduced as the taxable value per owner decreases proportionally.
Stamp Duty
Stamp duty is a one-time state tax when purchasing property in Cyprus, payable within one month after signing the sale contract.
The rate is 0.15% for properties valued up to €170,000. For properties valued over €170,000, the stamp duty rate is 0.2%. The first €5,000 of the property value is exempt from stamp duty.
Taxes on Property Ownership in Cyprus
Municipal Tax
Since January 1, 2017, the state property tax (Immovable Property Tax, IPT) has been abolished.
Municipality Tax
Municipality tax is a local tax in Cyprus, payable to the respective municipality. The tax base is the market value of the property as of January 1, 2013. The tax rate ranges from 0.1% to 0.2%, with each municipality setting its rate and payment deadlines. Late payment of this tax incurs penalties, which can be significant. For example, in Limassol and Larnaca, the penalty is 10% of the unpaid amount.
Local Government Charges
Local government charges in Cyprus include fees for services such as garbage collection, street lighting, and sewage. The amount of these charges depends on the type and size of the property, usually ranging from €85 to €500 per year. A separate sewage tax is paid, calculated based on the market value of the property as of January 1, 2013, typically around €100–200 per year, payable to the local sewage management department.
Taxes on Property Sales in Cyprus
Capital Gains Tax
Capital Gains Tax is applied to the profit from selling property. The tax rate is 20%. Capital Gains Tax is calculated on the difference between the purchase and sale prices. In practice, the effective rate is much lower due to various exemptions. The first €17,086 of profit per owner is exempt from tax. If the property has been owned by the seller for more than 5 years and this is the first sale of property in Cyprus, the first €85,430 of profit is exempt from tax. Documented expenses for property improvements can also be deducted from the taxable base.
IPTL
Since February 22, 2021, a IPTL has been introduced in Cyprus, applied to all property sales. The fee is 0.4% of the sale price as stated in the sale contract. This fee is payable by the seller and is calculated based on the contract value.
Taxes on Inherited or Gifted Property
In Cyprus, inheritance tax was abolished in 2000, but transfer fees apply when property is passed on through inheritance. In the case of a gift, the tax rate depends on the degree of kinship: transfers from parents to children are exempt from tax; between spouses and relatives up to the third degree, the rate is 0.1%; for trustees, there is a fixed fee of €50.
How to Save on Taxes
To optimize tax expenses in property transactions in Cyprus, consider the following strategies:
When Buying:
- For new properties: Take advantage of the reduced VAT rate if planning to live in the property permanently.
- In the secondary market: Register the property in both spouses’ names to fall into a lower tax bracket.
When Selling:
- Keep documentation of purchase and improvement expenses to deduct from taxable profit.
- Initially register the property in both spouses’ names to split the profit and fall into a lower tax bracket.
- Utilize the long-term ownership exemption for properties held for more than 5 years.
Consultation with real estate agents and tax professionals can provide additional opportunities for reducing tax liabilities.
Disclaimer: This article is intended solely for general informational purposes and does not replace professional advice. Do not rely on the information in this article without seeking independent consultation considering the specific circumstances of your case. The authors and publishers are not responsible for any losses that may arise from actions or inactions based on this article.
