"Transfer of property ownership in Cyprus: legal, procedural, and tax aspects""

To print this article, you need to register or log in to Mondaq.com.

The transfer of ownership rights to real estate 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 district as the property, although the parties may choose a DLO in a different district for convenience. In this case, a dual entry is made in the DLO of the district where the property is located. If a Cypriot company owns the property, the shareholders of the company may opt to sell their shares to the buyer, in which case the company changes its shareholders but remains the owner and retains the rights to the property. Thus, most of the formalities related to the transfer of rights in the DLO will be avoided, and no transfer fees will be paid. The sale of shares in a Cypriot company is also exempt from tax (except for income tax on the transfer of shares in a company that owns property in Cyprus). Here are the main reasons why a private Cypriot limited liability company is a popular vehicle for owning real estate. It is also important to note a relatively new tax related to the Equal Duty Agency, which is levied on sellers of real estate in Cyprus (including shares of companies owning property in Cyprus) at a rate of 0.4% of the sale amount (collected by the tax office since 18/11/22) upon the issuance of a tax permit. This tax is intended to assist Cypriot refugees who left their homes after Turkey's invasion of Cyprus in 1974. In the case of a transfer of rights to the buyer, the buyer pays a transfer fee, which is calculated by the DLO based on the value of the property. The rates range from 3% to 8% depending on the value of the property: 3% for properties valued up to €85,000; 5% from €85,001 to €170,000; and 8% for properties over €170,001. Valuations conducted by the DLO are independent and may affect the transfer fee if the valuation exceeds the sale price based on recent sales in the same area. The procedure for transferring rights is straightforward, but some points should be considered to avoid last-minute surprises and delays.

1. Usually, an interested buyer starts with a thorough analysis of the property, first obtaining an online search in the DLO, and then in the form of paper copies. Such searches will reveal the legal and registered owner or owners, all the details of the property (for example, whether there is a separate certificate of ownership), but most importantly, they will show any mortgages, notes, or other encumbrances registered against the property.

2. If there is a mortgage or a lien on the property, the mortgage holder (most often a bank or financial institution) must be involved in the transfer process to give their consent and be able to release the mortgage after the remaining loan balance is fully paid off. In this case, a representative of the mortgage holder/bank is present in 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 building permits in place and obtain architectural plans 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 co-owners that is intended to be established, which regulates, among other things, the relationships of all co-owners in this complex.

4. Usually, the seller has a recent appraisal conducted by a licensed real estate appraiser, but the buyer also conducts their own property appraisal as well as technical inspections.

5. It is now common practice for the seller and buyer to go through all the procedures to comply 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 process the transfer and deposit of funds at the time of the transfer of ownership.

6. The seller may require permission from the Council of Ministers of Cyprus if they are a foreign citizen, meaning they are not a citizen of Cyprus or another European Union country. For initial residential or commercial properties that do not exceed certain criteria, such as the average cost of houses and plots in Cyprus, obtaining permission from the Council of Ministers is a formality.

7. The seller and the buyer sign a sales contract that outlines the terms of the transaction.

8. Such a sales contract can be registered with the local land registry office to ensure enforcement and protect the buyer's rights.

9. The seller must contact the Tax Authority to obtain a tax clearance certificate, as well as reach out to local authorities to obtain permits for municipal taxes and fees regarding all applicable taxes, including the profit tax from the sale of real estate.

10. The stamping of the purchase agreement must be carried out within 30 days from the date of its signing, as this is a requirement for the registration of the purchase agreement in the land registry office. The fee for stamping is charged at rates ranging from 0.15% to 0.2%. For agreements valued between 5,001 and 170,000 euros, the current stamping rate is 1.50 euro cents for every 1,000 euros or part thereof; for agreements valued over 170,000 euros, the current stamping rate is 2 euros for every 1,000 euros or part thereof, with a cap of 20.00 euros.

11. The sales contract also includes the completion date on which the transfer of ownership will take place in the relevant DLO. It is recommended and usually the balance of the purchase price is fully paid at completion and transfer of ownership.

12. After submitting the necessary documents to the DLO, the transfer process begins. The transfer fee is calculated based on the value of the property determined by the DLO and is paid by the buyer at the time of transfer.

13. The DLO updates property ownership records as soon as the transfer is completed, and certificates of ownership are usually issued on the same day. The buyer's registration with the DLO confirms their rights to the property.

In addition to the transfer fee and stamp duty, other taxes may also be levied when transferring property in Cyprus. These include:

• Value Added Tax (VAT). VAT may apply to the sale of real estate, except in certain cases. 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 goods.
• Capital Gains Tax (CGT) on property sales: 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 adjustments. The current rate of capital gains tax on property sales in Cyprus is 20%. CGT applies to both direct and indirect disposals related to real estate, so when selling shares, as mentioned earlier, CGT is charged on the market value of the property owned by the relevant Cypriot company, rather than on the total sale price.
• Profit from the sale of real estate is not subject to income tax (personal income tax) if the seller is a land developer or has conducted a series of transactions; in this case, they are considered to be engaged in land trading. In such cases, personal income tax is levied on the realized profit. Typically, those engaged in land trading operate under a legal entity. Cypriot companies pay personal income tax (corporate profit tax) at a rate of only 12.5%, which is one of the lowest profit/corporate tax rates in Europe.
• As described above, a tax related to the Equal Obligations Agency is charged, which amounts to 0.4% and is paid by the seller from the proceeds of the property sale.
• After the transfer of ownership is completed, the new owner becomes responsible for certain relatively minor annual property taxes. These depend on the location of the property and typically include:
  • Municipal taxes levied by the local authority where the property is located (calculated based on the market value of the property).
  • Other taxes related to the services provided for real estate (for example, sewage tax).

It is worth noting