It's Good to know.
Buying a Property - What is Involved?
Whilist there are no hard and fast rules governing the purchase method of property in Cyprus, one will typically buy through an agent or developer, or a partnership of both. Agents typically charge the buyer a comission of 5%, although an extra 3% may be charged if a developer is also involved. However, fees become more negotiable when the market cools. There is nothing to stop a buyer dealing directly with a seller, but this is not recommended, as the land registry system is somewhat bureaucratic and best tackled by a professional representative. Legal fees are likely to be in the region of 1100 EUR for a normal transaction.
Obtaining finance for a property purchased in Cyprus is relativelly straightforward, and thanks to the country's British connections, most bank staff speak reasonably fluent English. Typically, Cypriot banks will lend between 60% and 80% of the value of the property with the term usually fixed at seven to ten years, although longer repayment periods can be negotiated. As things stand, it would be very difficult to obtain a Cyprus mortgage from a non-Cyprus bank. The country's accession to the EU means in theory that any restrictions on capital transfers or interest rates should no longer apply. In practice however, it is taking longer than expected for the domestic banking industry to fully adjust to the new environment.
There are a number of taxes that are associated with the purchase of property in Cyprus. First, there is a Real Estate Transfer Tax. This is necessary to transfer the freehold into the name of the buyer and is levied on a progressive scale (up to 8%).
For residents there is an Immovable Property Tax based on the vaqlue of the property at a rate of 0,2% between EUR 170.000 and EUR 430.000; 0,3% up to EUR 800.000; and 0,35% over to EUR 800.000. The first EUR 170.000 is exempt.
The buyer is also liable for stamp duty.
Depending on the size of the property, local authority taxes per annum vary, and cover refuse collection, sewerage, street lighting etc.
When the time comes to sell, capital gains tax is charged on disposals of real property in Cyprus and shares in companies owning real property in Cyprus. The base date for calculating the acquisition cost of real property is 1st January, 1980 or later acquisition.
The tax rate is 20% of the chargeable gain as adjusted for inflation unless the gain is already liable to corporation tax, but certain lifetime exemptions apply to individuals for the disposal or agricultural land and main residence. The first 17.000 EUR of gain is exempt. This exemption limit rises to 80.000 EUR if the seller has lived in the property continuously for the previous five years. Further allowances are granted in relation to transfer fees, inflation and improvements made to the house, but the total exemption cannot exceed a 80.000 EUR limit. Capital gains tax does not apply to profits from the sale of real estate by residents who were not resident when they purchased the asset.
Working in Cyprus
Since Cyprus joined the EU, residency and work permits are no longer required of EU citizens. However, for non-EU citizens, employees of entities in Cyprus require "Temporary Work and Residence (TRE) Permits", which are issued by the Central Bank. For this purpose, employees are categorized either as Executives or Non-Executives.
In effect, executives are defined as senior management, and only three are permitted per company unless the Central Bank can be persuaded otherwise. The minimum age for an Executive is 24, and the minimum salary is 20.000 EUR per year. In both cases, a fair amount of documentation is required by the authorities and permits are normally issued for 2 years, renewable for a further three years.
Of course not everybody investing in Cypriot property is doing so with the intention of living there, and many investors (mainly British) will rent out homes whilist staying put in their home jurisdiction. Rentals in Cyprus will generally yield around 8% gross. After various management fees and costs have taken a bite, yields are closer to 5%.
Tax Implications in Cyprus
Few countries tax their citizens purely on a territorial basis (that is, only on income obtained from within the country of residence), and rental income from a property let in Cyprus will almost certanly attract income tax in you home state should you choose to remain there, not to mention capital gains tax when the property is sold on. In Cyprus itself, income tax is levied on a progressive scale up to 30% on income above 34.000 EUR. The first 10.000 EUR is exempt. Meanwhile, pensions are taxed at 5%.
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