Capital Gains Tax

When it comes to selling real estate or shares in Cyprus, understanding the applicable taxes is crucial for making informed decisions. At Property in Limassol provides you with detailed information about the Cypriot capital gains tax, where it applies, and available exemptions to help you navigate the process smoothly.

Capital Gains Tax Rate on Real Estate

In Cyprus, capital gains tax is applied at a rate of 20% on the net profit generated from the sale or transfer of real estate. This tax also applies to profits derived from the disposal of:

  • Shares in companies that own real estate in Cyprus provided the shares are not listed on any recognized stock exchange.
  • Rights arising from contracts related to real estate located in Cyprus.

Since December 17, 2015, this tax has extended to gains from selling shares in companies that indirectly own Cypriot real estate. This condition applies if the market value of the property exceeds 50% of the company’s total share value. Capital gains tax is also levied on transactions such as property transfers, exchanges, leases, gifts, cancellations, or abandonment of property rights.

How Taxable Gains Are Calculated

Taxable capital gains are determined based on the difference between the selling price of the property and its original purchase value, adjusted for inflation using Cyprus’ Consumer Price Index (CPI). For properties acquired before January 1, 1980, the calculation uses the property’s market value as of this date. Alternatively, the market value as of July 14, 1974, can be used if preferred by the owner.

Under the law amendment of December 17, 2015, taxable gains are categorized as any profit not subject to income tax. Certain expenses incurred during the acquisition and sale of the property are deductible from taxable capital gains. These may include:

  • Interest on loans related to the property.
  • Legal and administrative fees.
  • Transfer expenses, provided they meet specific conditions.

Taxation of Shares in Companies Owning Real Estate

When selling shares in a Cypriot company holding real estate, the taxable capital gains are calculated as follows:

  1. The real estate owned by the company is separated, and its market value is determined as of the sale date.
  2. The market value is then compared to:
  • The value of the property as of January 1, 1980, or
  • The date of acquisition of the property or shares, whichever is later.

The value of the company’s shares is excluded from this calculation since it reflects other assets. The company is liable for income tax on any profit it makes from selling the property, while the shareholder is liable for capital gains tax on profits made from selling the shares.

Exemptions from Capital Gains Tax

Several exemptions are available under Cypriot tax laws, providing significant relief to individual taxpayers. These exemptions are subject to lifetime limits, which include:

  • €17,086: Exemption for taxable gains from the sale of any Cypriot property.
  • €25,629: Exemption for gains from selling agricultural land, provided the seller qualifies as a farmer under specific conditions.
  • €85,430: Exemption for gains from selling a primary residence, provided it was used as the owner’s main home under prescribed conditions.
  • A lifetime total of €85,430 applies across these exemptions.

Real Estate Transactions That Are Fully Exempt

Certain transactions involving real estate in Cyprus are fully exempt from capital gains tax. These include:

  • Property transfers due to inheritance.
  • Donations between relatives up to the third degree (e.g., spouses, siblings, grandparents, and grandchildren).
  • Donations to the Republic of Cyprus, local authorities, or recognized charitable organizations.
  • Donations to a family company, provided all shareholders remain family members for at least five years post-donation.
  • Transfers of property as part of company restructuring under specific conditions.
  • Gains from selling property acquired between July 16, 2015, and December 31, 2016.
  • Property exchanges under the Agricultural Land Consolidation Laws.
  • Donations made to political parties.

Property Exchanges and Partial Taxation

When property is exchanged rather than sold outright, taxation applies to the gains not used to acquire the exchanged property. For example:

  • If the property being exchanged is valued at €100,000, and the property received in exchange is valued at €60,000, the taxable gain would be €20,000.
  • If the exchanged property is valued at €88,000, the untaxed gain is €8,000, and the acquisition cost of the new property is reduced accordingly.

Contribution to the Equal Distribution of Burdens

When selling real estate located in areas controlled by the Republic of Cyprus, a contribution of 0.4% of the sale proceeds is required. This contribution also applies to the transfer of shares in companies holding such real estate, provided the buyer gains control of the company.

The contribution is calculated based on the latest property valuation by the Department of Lands and Surveys.

Plan Ahead with Our Tax Calculator

Property in Limassol provides a user-friendly tax calculator to help you estimate your potential capital gains tax and other associated costs. By planning ahead, you can make well-informed decisions about your real estate transactions in Cyprus.

How We Can Help

Understanding and managing capital gains tax in Cyprus can be complex, but with expert guidance from our team at Property in Limassol, you can navigate the process with confidence. Be it calculating taxable gains or exploring exemptions and deductions, we will help maximize your financial benefits while staying fully compliant with Cypriot tax laws. For personalized advice or assistance with your next property transaction, contact us today.

Frequently Asked Questions

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What is the VAT Reduction Application?

The VAT reduction application allows individuals (not companies) to reduce the VAT rate from 19% to 5% for properties intended as permanent residences (not for rental purposes). This government grant applies to the first 200 square meters of the property. For any area exceeding 200 square meters, the standard 19% VAT rate will apply.

Important conditions:

The buyer must retain the property for 10 years to fully benefit from the VAT reduction. If the property is sold within this period, a proportional amount must be repaid to the VAT authority for the remaining years.

Before applying for VAT reduction:

  • Ensure that the purchase contract is signed and recorded at the Land Registry.
  • Avoid connecting electricity in your name, furnishing the property, or occupying it before approval.

VAT Payment Before Approval:

Initially, you must pay the full 19% VAT to the seller. Once your application is approved, the developer will refund 14% of the VAT payment. Any future payments to the developer will be charged at the reduced VAT rate of 5%.

No. Married couples or those in a civil partnership are entitled to one VAT reduction application between them. Even if purchasing separate new properties, only one reduced VAT application can be granted.

However, if the property for which the VAT reduction was obtained is sold or 10 years have passed since the rebate was granted, a new VAT reduction application may be submitted for a different property.

No, the VAT reduction does not apply if:

  • The property is intended for short-term or long-term rental.
  • The purchase is made under a company’s name.

The VAT reduction is a one-time benefit for personal, permanent residence use. If the property is sold, you may reapply for the reduction for a new property, subject to meeting the conditions.

In most cases, VAT is payable when purchasing land. However, certain exceptions exist under Cypriot law where the sale of land is exempt from VAT. For specific advice tailored to your situation, we recommend contacting our office, as the applicability of VAT varies case by case.

  • No transfer fees are required if you purchase a new property where VAT was paid.
  • For resale properties (used properties), transfer fees are payable, but VAT is not applicable.

For further details or assistance regarding property transactions and VAT in Cyprus, please feel free to reach out to our team.

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