Transfer of property rights in Cyprus - legal, procedural and tax aspects

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Transfer of property ownership in Cyprus

The transfer of property ownership in Cyprus is usually carried out by transferring the title at the relevant District Land Office (Department of Lands and Surveys of the Republic of Cyprus - DLO). Typically, the DLO is located in the same area as the property itself, although the parties may choose a DLO in a different area for convenience. In this case, a dual entry is made in the DLO of the area where the property is located.

In the event that a Cypriot company owns real estate, the shareholders of the company can choose to sell their shares to a buyer. In this case, the company changes its shareholders but remains the owner and retains rights to the property. Thus, most formalities related to the transfer of rights in DLO will be avoided, and no transfer fees will be paid. The sale of shares in a Cypriot company is also exempt from taxes (except for the tax on profits from the sale of shares in a company that owns real estate in Cyprus). Here are the main reasons why a Cypriot private limited liability company is a popular tool for owning real estate.

It is also important to note the relatively new tax related to the Equal Obligations Agency, which is levied on real estate sellers in Cyprus (including shares owned by real estate in Cyprus) at a rate of 0.4% of the sale amount (collected by the tax department since 18/11/22) upon obtaining a tax permit. This tax is intended to assist Cypriot refugees who were forced to leave their homes as a result of Turkey's invasion of Cyprus in 1974.

In the case of transferring the right to the buyer, the commissions calculated by DLO based on the sale price of the property are paid by the buyer to DLO, with some exceptions provided by law, such as gifts from parents to their children. The rates progress and range from 3% to 8% depending on the value of the property: 3% for properties valued up to 85,000 euros; 5% from 85,001 to 170,000; and 8% from 170,001 and above. The appraisals conducted by DLO are independent and may affect the payment of commissions if the official appraisal exceeds the sale price according to recent sales in the same area.

Procedure for the transfer of rights

The procedure for transferring rights is not complicated, but certain points should be considered to avoid last-minute surprises and delays.

1. Typically, an interested buyer starts with a thorough examination of the property, obtaining information from the DLO online at first, and then in paper form. This information will help identify the legal and registered owner or owners, all the details of the property in question (for example, whether there is a separate certificate of ownership), but most importantly, it will reveal the presence of mortgages, records, or other encumbrances registered against the property.
2. If the property is encumbered by a mortgage or lien, the mortgage holder (usually a bank or financial institution) must participate in the transfer process to give their consent and be able to release the mortgage after the remaining loan balance, for which the mortgage was granted, is fully paid off. In this case, a representative of the mortgage holder/bank is present at the DLO during the transfer of ownership.
3. In the event that the property is still under construction, the buyer should also ensure that there are planning and building permits in place and should request architectural drawings and all technical specifications provided by the relevant authorities. If the property is an apartment or a house that is part of a residential complex, the buyer should also inquire about the agreement among the common owners that is intended to be established, which regulates, among other things, the relationships of all owners within that complex.
4. The seller usually has a recent appraisal conducted by a licensed real estate appraiser, but the buyer typically conducts their own property appraisal as well as any technical inspections of the property.
5. It is now common practice for the seller and buyer to undergo checks for compliance with anti-money laundering (AML) and know your customer (KYC) requirements of the relevant banks, so that the banks are prepared to accept any potential sale and purchase of real estate and to facilitate the transfer and deposit of funds during the transfer of rights.
6. The seller may need permission from the Council of Ministers of Cyprus if they are a foreign citizen, meaning they are not a citizen of Cyprus or another EU country.

Additional taxes

In addition to commissions and fines, other taxes may also be levied when transferring property in Cyprus.

• Value Added Tax (VAT): VAT may apply to the sale of real estate, with some exceptions. The standard VAT rate in Cyprus is 19%. VAT is usually included in the purchase price, and the responsibility for its payment lies with the buyer as the purchaser of the goods.
• Capital Gains Tax (CGT): CGT may apply if the seller makes a profit from the sale of real estate. The tax is calculated based on the difference between the acquisition cost and the selling price, taking into account certain deductions and exemptions, as well as specific adjustments. The current capital gains tax rate in Cyprus is 20%. CGT applies to both direct and indirect transfers of real estate.
• Income tax: Profit from the sale of real estate is not subject to taxation (income tax) if the seller is a landowner or has conducted several transactions; in this case, they are considered a land trader. In such cases, income tax is imposed on the realized profit.
• Municipal taxes: After the transfer of ownership is completed, the new owner becomes responsible for certain annual property taxes levied by the local authority where the property is located.