Buying a property in Cyprus can be a lucrative venture, but it is imperative to understand the legal aspects to ensure a seamless and secure transaction. This article provides insights into the key considerations and processes involved in purchasing a property in Cyprus, providing buyers with the information required to make informed decisions.
(1) Permission to Buy Property in Cyprus
Cypriots, EU citizens as well as companies registered in Cyprus can buy real estate without restrictions or requiring permission to purchase real estate in Cyprus.
On the other hand, third country nationals are required to obtain permission from the Council of Ministers. This permission is not unreasonably withheld and is essentially granted to all bona fide buyers. The application to obtain permission by the Council of Ministers can be made within a reasonable time after signing the contract of sale for the property.
It is noted that there are certain limits as to the amount and size of properties third country nationals can register to their names.
(2) Contract of Sale
Before signing the Contract of Sale, it is imperative that due diligence is conducted on the property to be purchased.
As a first step, ascertain whether the property has its own separate title deed. If not, determine whether there is a valid reason for this, such as whether it is a new development and title deeds have not been issued yet.
The Contract of Sale, to safeguard the interests of the buyer, must be negotiated to include clauses related to (a) payment schedule, (b) elimination of charges, memos or any other kind of encumbrances, and (c) settlement by the seller of all outstanding taxes and fees in relation to the property up to the date delivery of possession. It is noted that each sale may have different characteristics and therefore different matters will need to be addressed in the Contract of Sale.
Conduct a search at the Department of Lands and Surveys (the Land Registry) to ascertain whether any mortgages, charges or other encumbrances are registered against the property and which may affect the sale of the property.
In the event the property does not have a separate title deed yet, then the town planning permit, building permit as well as the certificate of final approval will need to be reviewed to ensure the property is on track to receive a separate title deed.
(3) Stamp Duty and Filing the Contract of Sale to the Land Registry
Stamp Duty is paid when the Contract of Sale is submitted to the Land Registry and it is calculated on the sale value of the property. As a standard market practice, the stamp duty and the fees for filing the Contract of Sale to the Land Registry are paid by the buyer.
The Stamp Duty is calculated as follows based on the sale value of the property:
First EUR5,000 – 0%
From EUR5,001 to EUR170,000 – 0.15%
Over EUR170,001 – 0.20%
The fee for filing the Contract of Sale to the Land Registry is fixed at EUR50 and there is a six month window from the execution date of the Contract of Sale to file it to the Land Registry.
From the moment the Contract of Sale is deposited at the Land Registry it creates a charge on the property and secures the rights and interests of the buyer over the property and prevents the seller from transferring the property to someone else without the consent of the buyer.
(4) VAT on the Property
The standard VAT rate in Cyprus is 19% which is applied when buying a new property (i.e. not a resale). However, under certain conditions, the buyer can apply for a reduced VAT of 5% provided that the property is residential and it is their first primary residence.
In the event the buyer has obtained the reduced VAT of 5% and intends to sell the property before 10 years from the acquisition date, the buyer will need to return the balance of the VAT benefit for the period short of 10 years to the VAT Authorities.
(5) Immovable Property Tax and Other Fees/Taxes
In Cyprus there is no immovable property tax, however, there are other fees and taxes that need to be considered such as:
Local Authority Fees which span from EUR85 to EUR500 per year depending on the size of the property.
Municipality Tax which span from 0.1% to 0.2% per year on the market value of the property as of 1 January 2013.
Sewerage Tax which rates span from 0.05% to 0.03% per year on the market value of the property as of 1 January 2013.
(6) Transfer of Title Deed and Property Transfer Fees
To transfer the property the Seller and Buyer or their respective representatives (e.g. lawyers) need to be present at the Land Registry to effect the transfer of the property in the name of the buyer.
As a market standard practice, buyers pay the transfer fees, which are calculated based on the sale value of the property:
EUR0 to EUR85,000 – 3%
From EUR85,001 to 170,000 – 5%
Over EUR171,001 – 8%
The transfer fees are exempted or reduced by 50% in the following cases:
where the sale of the property is subject to VAT the transfer fees are exempted.
where the sale of the property is not subject to VAT (i.e. resale of the property), a reduction of 50% on the amount of transfer fees is applied.