Purchasing real estate in Cyprus can be a thrilling and lucrative investment, but to prevent any unpleasant surprises, it is essential to understand the associated financial commitments. Among the various costs you’ll encounter, stamp duty and property fees are two of the most important expenses that buyers need to consider. Let us review everything related to them in detail!
Applicable Law and General Rule
The application of Cyprus stamp duty is governed by the Stamp Duty Law, which was first enacted in 1963 and has since undergone several amendments. This law outlines the procedures, rates, and types of documents subject to charge to ensure that property transactions and other agreements in Cyprus are properly formalised.
What Is Stamp Duty?
Simply put, stamp duty payable is a tax you pay on certain documents related to your real estate purchase. This includes your property sales agreement and other important paperwork that makes your ownership legal and binding. Without paying this tax, your documents lack official recognition, which could lead to complications down the road.
The duty is calculated based on the value of the transaction, with rates as follows:
Up to €5,000: 0% (no payment)
€5,001 to €170,000: 0.15%
Above €170,000: €2 per €1,000, with a maximum stamp duty of €20,000.
For example, a property valued at €200,000 would incur €60 in duty (€2 x 30).
To help calculate the exact charge amount for your transaction, property purchasers can use the official stamp duty calculator, available on the Cyprus Tax Department's website. This tool provides an easy and accurate way to estimate your prospective costs.
Documents Subject to Stamp Duty
As you have already gotten acquainted with the stamp duty law principles, let's take a closer look at what most typical documents it applies to:
Sales contracts: These are the primary documents when buying or selling property, and they are subject to tax based on the sale price or market value.
Lease agreements: Long-term leases (over 99 years) also require tax payment, which makes it necessary for both parties to consider this cost when negotiating rental terms.
Loan agreements: If you are financing your property purchase with a mortgage, the loan agreement will also be subject to duty, calculated on the loan amount.
Paying the Stamp Duty
To pay stamp duty is an essential step in formalising a property transaction. The buyer is typically responsible for settling the charge, though the parties involved may agree to a different arrangement. Once the sales agreement or lease is signed, the tax must be paid within 30 days. Failing to meet this deadline can result in penalties, which are calculated as a fixed amount or a percentage of the unpaid stamp duty owed. To calculate it right away, you can use a stamp duty calculator.
The payments can be made directly to the Cyprus Tax Department or through the government’s online payment system. A receipt of payment should always be kept, as it’s required for the property’s registration process at the land registry through the Department of Land and Surveys.
Property Transfer Fees
When purchasing real estate in the Republic of Cyprus, buyers are required to pay transfer fees to the Department of Land and Surveys. These charges are essential for registering the property under the buyer's name and are calculated based on the property's market value at the time of purchase. The rates are as follows:
Up to €85,000: 3%
€85,001 to €170,000: 5%
Above €170,000: 8%
Example calculation: For a property valued at €300,000:
First €85,000: €85,000 x 3% = €2,550
Next €85,000 (€85,001 to €170,000): €85,000 x 5% = €4,250
Remaining €130,000 (€170,001 to €300,000): €130,000 x 8% = €10,400
Total transfer fee: €2,550 + €4,250 + €10,400 = €17,200
There are several exemptions and reductions that apply to transfer fees. For properties subject to VAT, transfer fees are not applicable. This applies to new belongings where VAT has been paid. For resale properties not subject to VAT, there is a 50% reduction in the transfer fees. Additionally, family transfers, such as from parents to children, are exempt from charges, while transfers between spouses and third-degree relatives are subject to a reduced rate of 0.1%.
Tax Obligations You Should Consider
Let us sum up the taxes we’ve already mentioned and some more:
Value Added Tax (VAT): New properties are typically subject to a standard VAT rate of 19%. This is applicable to properties sold by developers.
Property transfer fees: As mentioned earlier, these fees are calculated based on the market value of the real estate or the sale price (whichever is higher).
Stamp duty payable: According to written stamp duty law, the charge is paid on property-related documents such as sales contracts and leases.
Municipal taxes: These include local council taxes for services, such as waste collection and street maintenance. Rates vary depending on the location of the property, so buyers should check with the local municipal authorities for exact figures.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) in Cyprus applies when you sell property at a profit. The current CGT rate is 20% on the gain made from the sale, calculated as the difference between the selling price and the original purchase price, adjusted for allowable costs such as improvements or certain fees. However, there are exemptions. For example, if the property sold was your primary residence and you’ve lived in it for at least five years, you may qualify for an exemption on the first €85,000 of the capital gain. Additionally, transfers between close relatives may also be exempt from CGT.
Other Expenses
In addition to the main fees and taxes, property buyers in Cyprus should account for several other expenses. Legal fees typically range from 1% to 2% of the purchase price, depending on the complexity of the transaction. Notary fees are also necessary for certain transactions, usually costing around €50 to €150 per document. Buyers should also consider insurance costs for the property, which can vary based on the value and type of insurance required. Ongoing maintenance costs, including utilities, cleaning, and repairs, should also be factored into the budget to ensure the real estate remains in good condition.
Property Purchase Process
Buying property in Cyprus involves several important steps, each crucial for ensuring a smooth and legally sound transaction. Below is a breakdown of the key stages in the process:
Selecting a Project
The first step is to find a property that suits your needs and budget. It's important to engage with a reputable real estate agent or developer to help you identify buildings that match your criteria.
Legal Checks
Before signing any contracts, the professional advice of a lawyer is needed. They will conduct thorough legal checks to confirm the property’s title, ensure no outstanding debts, and verify that there are no disputes.
Contract Signing
Once the legal checks are complete, the sales contract is drafted. This document outlines the terms of the sale, including the agreed price, payment schedule, and any conditions. Both parties sign the contract, which then becomes legally binding.
Payments
After the contract is signed, a deposit is typically paid (usually around 10% of the purchase price), followed by the remaining balance either in instalments or as a lump sum. Buyers must also account for Cyprus stamp duty, property transfer fees, and other associated costs.
Property Transfer
Once the full payment is made, the buyer's lawyer will submit the documents to the Department of Land and Surveys for registration. Transfer fees must be settled before the transaction is finalised. The property is then officially registered under the buyer's name, completing the purchase process.
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