Property in Cyprus can be purchased through a Cypriot company and the investor can benefit from the advantages available to Cypriot corporations. There are a number of capital gains tax exemptions, which make investing in Cypriot property attractive and Cypriot corporation taxes are also competitively low.
For the purposes of this Article, property is defined as both residential and commercial property.
Exemptions from Capital Gains Tax – Property Located in Cyprus
A major capital gains tax exemption exists until the end of 2016:
- Land, including land with buildings, which was or is purchased at its market value from a non-connected person, in the period 16 July 2015 to 31 December 2016.
In addition, the following disposals of property located in Cyprus are NOT subject to capital gains tax:
- Transfers as a result of a company reorganisation.
- Gifts to a company where the company’s shareholders are members of the donor’s family and the shareholders continue to be members of the family for five years after the date of the transfer.
- Gifts by a family company to its shareholders, provided such property was originally acquired by the company by way of donation. The property must be held for at least three years.
- Exchange of properties, provided that the whole of the gain made on the exchange has been used to acquire the other property. The gain that is not taxable is deducted from the cost of the new property, i.e. the payment of tax is deferred until the disposal of the new property.
- Transfers arising on death.
- Gifts made from a parent to a child or between husband and wife, or between specified other relatives.
- Gifts to charities and the Government.
Standard Capital Gains Tax in Cyprus
Generally, capital gains tax is charged at a rate of 20% on gains arising from the sale of property in Cyprus or the disposal of shares in companies that own property in Cyprus. Since 17 December 2015 shares in companies that indirectly own property located in Cyprus, where at least 50% of the value of the shares is attributable to the property, are subject to capital gains tax.
The first €85,430 of a gain made by an individual on disposal of a personal property is exempt from tax. This exemption is available only once.
Additional Major Capital Gains Tax Exemptions
The following capital gains tax exemptions exist:
- Gains accruing from the disposal of property held outside Cyprus and shares in companies, the assets of which consist of property held outside Cyprus.
- Gains from the sale of shares listed on a stock exchange including the sale of shares relating to property in Cyprus.
Competitive Corporation Tax Rates
Attractive tax benefits include:
- Rental income from property is subject to the standard 12.5% corporation tax.
- There is no withholding tax on dividends from the proceeds of the sale of property, or on capital distributions on the subsequent liquidation of a company.
- Generally, expenses incurred in earning taxable income from property, for example, interest expense, repairs and maintenance and annual wear and tear allowances (supported by documentary evidence) are deductible for corporation tax.
Cyprus tax resident companies are taxed on income from all sources, eg. from Cyprus and from abroad.
Special Defence Contribution
A Special Defence Contribution is levied on dividend income, ‘passive’ interest income and rental income earned by tax resident Cyprus companies and by individuals who are both Cyprus tax resident and Cyprus domiciled.
The Special Defence Contribution on rental income (reduced by 25%) is 3%.
Additional Costs in Relation to Property held in Cyprus
- Stamp Duty
Stamp duty is payable based on the contract value of the property but is capped at a maximum of €20,000.
Contract Value of Property
% of Property Contract Value
€5,001 to €170,000
- Immovable Property Tax, Transfer Fees and VAT
An Immovable Property Tax is imposed on the market value of property owned in Cyprus. Further information regarding this tax can be provided by the Dixcart office in Cyprus, together with information regarding relevant transfer fees and VAT.
In relation to the reorganisation of a company, the transfer of immovable property is NOT subject to transfer fees or mortgage registration fees.
Acquisition of Property in Cyprus by Non Resident Individuals and Foreign Corporations
Under Cypriot law, EU citizens are allowed to acquire any property in Cyprus without restriction.
Specific but not onerous requirements are detailed in Cypriot law regarding the acquisition of immovable property by foreign companies and non-European individuals.
The tax position for foreign companies and for non-resident individuals is summarised below:
- Foreign corporations and non-resident individuals are exempt from capital gains tax where the property is or has been acquired since 16 July 2015 and before the 31st December 2016.
- Cyprus rental income earned by foreign corporations is subject to corporation tax at 12.5% after deductions. The special defence contribution of 3% is not levied on foreign corporations.
- Rental income for non-resident individuals is taxed in accordance with the Cyprus personal income tax band rates, with the first 20% of income being exempt and certain expenses allowable. The special defence contribution of 3% is not levied on non resident individuals.
- Interest on borrowing to acquire a property is an allowable expense.
A number of tax benefits can be enjoyed by corporations investing in property through a Cypriot company. Attractive exemptions from capital gains tax and corporation tax advantages are available to non-resident individuals and corporations.
How Can Dixcart Assist?
Dixcart has an office in Cyprus and can provide expertise and advice regarding the advantages of investing in property through a Cypriot company. We can also provide advice regarding the acquisition of immovable property by foreign companies and non-resident individuals (European and non-European), as well as property related VAT matters.
If you require any additional information about investing in property through a Cypriot company please contact Robert Homem at the Dixcart Office in Cyprus: email@example.com.