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:
- The real estate owned by the company is separated, and its market value is determined as of the sale date.
- 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.