The demand for property in Cyprus is growing year-on-year, as the region is known for its beautiful scenery, vibrant culture, and welcoming environment for foreign investors.
Understanding the property tax meaning in Cyprus is crucial. After all, having an idea of how property taxes are calculated and their impact on property and investment is essential to making informed decisions in the market. But don’t worry, we’re here to help you make sense of the complexities of taxation.
Source: cyprus-faq
Property Tax in Cyprus
What is real estate tax? This is a periodic fee deducted from the assessed value of a property. It is levied by local governments and paid by owners within their jurisdiction. They can be divided depending on the form of ownership.
For Buyers
When buying property on a Mediterranean island, you will need to pay for:
- Stamp duty.
It is valid for the sale and purchase agreement and relevant documentation. This fee for property in Cyprus is paid to the tax office within 30 days of signing the contract.
Fees:
- Up to €5,000 – exempt;
- €5,001 – €170,000 – 0.15%;
- over €170,000 – 0.2%.
The maximum stamp duty for one transaction does not exceed €20,000.
- Transfer of property
One of the main taxes to consider when buying property in Cyprus is levied at the time of property transfer and is calculated based on the market value of the property at the time of sale. The amount is paid to the Land Registry office and is calculated based on the market value of the property at the time of transfer.
- up to €85,000 – 3%;
- €85,001 – €170,000 – 5%;
- over €170,000 – 8%.
A 50% discount is currently available, and it applies when the property is subject to VAT or if it is the first sale of an apartment by the developer. Also, if the property is owned in joint names (for example, by spouses), the cost is divided into two parts.
- Value added tax VAT
Newly built property in Cyprus is subject to 19% VAT. However, if it is your first residence, a reduced VAT rate of 5% may apply for properties of up to 200 square meters.
For Sellers or Households
Those who wish to sell or rent out their property should be aware of the following property taxes:
- On rental income
If you are planning to rent out your property in Cyprus, please note that the income received is taxed progressively:
- up to €19,500 – 0%;
- €1,950 – €28,000 – 20%;
- €28,001 – €36,000 – 25%;
- €36,001 – €60,000 – 30%;
- over €60,000 – 35%.
- Short-term property tax
These charges include VAT on rental income, GESY, and sometimes a special defense contribution (SDC). They may vary by region.
- Capital gains tax
It is paid at the rate of 20% of the profit from the sale of real estate located in Cyprus. However, there may be allowances and deductions:
- exemption for the first transaction of up to €85,000;
- for agricultural land – €25,430;
- for any other type of property – €17,086.
These exemptions can be combined under certain conditions, potentially providing a deduction of up to €127,516.
For Owners
Property owners in Cyprus are subject to various current taxes and fees:
- Real estate duty
Abolished in 2017, so there are no annual fees for owners.
- Local real estate taxes
These are annual fees based on the market value of the property and range from 0.1% to 0.3%. They cover garbage collection, street lighting and other utilities. They are set by the local municipality, so this fee may vary depending on which part of the island the villa is located.
Owning property in Cyprus involves different tax considerations for owners. Therefore, it is worthwhile to understand the issue, and we are sure that our advice will help in this regard.
Tips for Homeowners
In order to correctly and accurately pay all house taxes and fees and how property taxes work, you need to understand the essence of municipal fees:
- Understand the essence of municipal fees.
Contact your local municipality for detailed information and familiarize yourself with the taxes applicable in your area.
- Find out about commission rules and possible discounts.
When closing a deal, you should consider the commission and find out about the right of concession for you.
- Be aware of VAT rates.
When buying a new property, make sure you understand the VAT rates. If this is your first purchase, find out about discounts on such conditions.
- Keep records of capital gains tax.
Keep careful records of the purchase price of your property, the costs of improvements, and the cost of selling. This is necessary in order to correctly calculate the capital gains tax on the sale.
- Consult with tax experts.
It is worthwhile to communicate with a specialist from time to time to keep abreast of any changes in property tax legislation and to optimize your tax liabilities.
Advice to Investors
Construction in Cyprus has become one of the most profitable investment strategies in recent years due to the stable demand for property. However, it is also important for investors to understand the taxes that apply on the island, so it is worthwhile:
- Draw up a transfer plan.
Include transfer fees and stamp duty in your investment calculations to estimate the total costs accurately and stay in the black.
- Develop a capital gains taxation strategy.
Refine your plan to minimize your capital gains tax liability, for example, by taking advantage of reliefs. Consider holding the property longer to benefit from potential tax reforms.
- Understand the implications of VAT.
Keep in mind the VAT bottom line when purchasing new property and take advantage of reduced rates where possible.
- Regularly review municipal fees.
It’s worth periodically monitoring the municipal fees for your investment property and incorporating these costs into your rental pricing strategy.
Not as boring as it sounds? But now that you know all the possible home taxes and fees and their specifics, you understand what to prepare for.
We have saved you a lot of time, because now you don’t have to go into these issues while in Cyprus. You will be able to spend all your time admiring the picturesque landscapes and exploring the historical heritage. Enjoy!
