The Financial Benefits To Property Ownership In Cyprus
For people moving to Cyprus for either partial or permanent residence there are many financial incentives that make the purchase of property and obtaining residency even more attractive than just for the location and the glorious weather. Some of the incentives are outlined below:
- The cost of living is substantially lower than most European countries, it is often stated that an average retired couple with no mortgage, running one car and enjoying an active social life con comfortable live on between €18,000 - €22,000 per year.
- Pensions from abroad are subject to a flat tax rate of 5%, with an initial annual allowance of €3,417 being tax exempt. There are many qualified specialist accountants who can assist you in transferring your pensions across to Cyprus and also providing asset and wealth protection advice.
- Double taxation treaties conclude with numerous countries eliminate double taxation of foreigners residing in Cyprus. Where relief is not given under a double taxation treaty, relief from Cyprus tax is given unilaterally.
- The importation of personal effects, household goods and cars is duty free.
- Cyprus has long been an attractive location for off shore international business companies to operate from with numerous tax advantages, not least a very attractive 4.25% corporation tax which is now obsolete. Whilst no longer considered an offshore haven, Cyprus is now classified as a tax efficient location due to changes in taxation laws, which were effected in line with their accession to the EU in 2004. Cyprus is still however considered an extremely tax efficient location to run either local (onshore) or international (offshore) business from, with both types of companies now being taxed at 10% corporation tax and employees enjoying the first €19,500 tax exempt prior to a progressive sliding income tax scale. There is a spirit of entrepreneurialism on the island of Cyprus with many people operating as sole-traders and many starting their own businesses.
- The generous Euro 19,500 tax free allowance can also be utilised to ensure tax free interest and dividend income etc. remitted from overseas.
Cost of Property Purchase & Ownership
Below we have outlined information regarding the main costs associated with the purchase and ownership of a property in Cyprus, they are listed in the order that you are likely to encounter them.
1) Financing & Mortgages
All commercial banks in Cyprus are authorised to offer mortgage facilities to assist foreigners (non-Cypriots) in the purchase of property. The maximum amount that the banks can loan on a LTV (loan to value %) basis is governed by the Central Bank of Cyprus, currently (except for some very specific circumstances) banks may loan up to 80% LTV for a resident whose first property it is and up to 60% for all other cases. These maximum LTV figures are of course subject to the banks analysis of repayment ability. Repayment periods are now availiable up to 30 years assuming the term plus the applicant's age does not exceed 70. This increased term can allow more favorable monthly repayments. Also one clever way to take advantage of a longer term and reduce monthly mortgage payment for older purchasers is to purchase and apply for a mortgage in their children's names with them annexed to the legal contract of sale and the mortgage as guarantors; we have exercised this practice several times and has effectively acted as a bridging period for major assets to be disposed of etc. The last five years has seen increased competitiveness within the banks with more special offers, interim fixed periods and varying grace periods. Olive Properties have numerous contacts with the local banks and experience in assisting in the mortgage arrangement process for several of our happy customers, and we can help assist you with your needs accordingly; we can also introduce you to financial advisors as appropriate.
2) Legal Fees
The cost of a reputable solicitor experienced in property conveyancing in Paphos is approximately €1,000 - €3,000 per contract of sale transaction, depending on what is specifically involved and also the value of the purchase. Don't be afraid to ask for a quote up front, including a full breakdown of all costs.
3) Stamp Duty
This is due at the same time as the Contract of Sale is signed, the duty must be paid and the contract stamped within 30 days of signature otherwise a fine will be imposed. Your solicitor will arrange payment and typically include the Stamp Duty within their final invoice to you. It is applied to the full Contract of Sale purchase price, levied on a simple scale as below:
The first €170,860 charged @ 0.15%
Over €170,860 is charged @ 0.2%
Therefore on a property purchased for €250,000 the Stamp Duty would be calculated as follows:
€170,860 @ 0.5% = €256.29
€79,140 @ 0.2% = €158.28
Total Stamp Duty = €414.57
4) Immoveable Property Tax
Immoveable Property tax is somewhat of a quirky legacy from the past, as the tax itself is based upone the value (like the old UK rateable value) of the property as at 1980, which obviously is considerable lower than the current market values. It is the registered owner (i.e. the name on the Title Deed) who is liable. Given that the first €170,867 (at 1980 valuations) is tax exempt then invariably most properties are exempt from Immoveable Property Tax or face an inconsequential amount. It is charged annually on a sliding scale as below:
The first €170,860 is exempt
Between €170,860 and €427,150 is charged @ 0.25%
Between €427,151 and €854,300 is charged @ 0.25%
Over €854,301 is charged @ 0.4%
5) Insurance
For new properties that are Olive Properties projects we will provide comprehensive property insurance against fire and associated hazards during the construction phase until the property is delivered; thereafter, the cost is approximately €100 - €300 per year depending on the estimated replacement construction costs. For communal projects with joint and shared ownership facilities the management company will arrange a block insurance with one company and then split the charges down to each individual property unit (this is all done transparently and can be with m2 ownership). Household insurance is the responsibility of the purchasers and can be obtained for approximately €2.50 per €1,000 sum insured per year depending on the term of the policy. Medical and Health insurance is also available at extremely competitive prices. There are specialist insurance companies who deal only with expatriate clients, whom we will happily recommend.
6) Utilities & Municipality Levies
Charges for utilities are payable to the respective authorities at regular intervals (every 2 or 3 months) throughout the year and are based strictly upon unit consumption, an approximate estimate for water bills for an average 3 bedroom villa occupied on a residential basis would be €280.00 per year; for the same sized property electricity costs would be in the region of €800.00 per year. In addition the local municipality will also levy a tax for garbage collection and street lighting etc. this varies depending on the municipality but an approximate cost would be €80 - €250 per year; this is like the UK equivalent to Council Tax.
7) Relevant Common Expenses
Some communal projects will have shared facilities, such as swimming pools, private roadways, gardens and parking. In order that these facilities are maintained to a high standard a communal maintenance charge will be levied by the assigned management company. This is usually paid quarterly in advance and amount to approximately €700 for a standard 2 bedroom apartment; it is calculated depending on the project and size of the property.
8) Transfer Fees
Upon transfer of the property and registration in the purchasers name, the District Land Registry Office will charge a Transfer Fee Tax, which are calculated on a progressive sliding scale, on the market value of the property at the time of purchase (contract signature), and are calculated as follows:
The first €85,430 charged @ 3%
Between €85,431 and €170,860 charged @ 5%
Over €170,860 charged at 8%
Therefore an example purchase of €250,000 would be calculated as below:
€85,430 @ 3% = €2,563
€85,430 @ 5% = 4,271
€79,140 @ 8% = €6,331
Total Transfer Fee = €13,165
However the good news is that if a property is brought in joint names, i.e. husband and wife, then each partner receives an equal allowance, which reduces the burden, see the below calculation using the same example of CY£150,000:
Partner 1 €85,430 @ 3% = 2,563
Partner 2 €85,430 @ 3% = 2,563
Partner 1 €39,570 @ 5% = 1,978.5
Partner 2 €39,570 @ 5% = 1,978.5
Total Transfer Fee = €9,083
Also remember that the Transfer Fee is often deferred for sometime depending on how quickly the District Land Office can process the administration involved, a typical time period is 3-4 years from project completion. There is no rush to obtain title and pay the above mentioned tax, as the security of "specific performance" (see Legal section) can be enjoyed, many people prefer not to obtain title to avoid/delay paying the above mentioned tax.
9) Capital Gains Tax (CGT)
Upon the sale of your property you could be liable for CGT. A capital gain of €17,086 per person (therefore €34,172 for a marries couple) above the property purchase price is tax free, thereafter CGT is chargable at 20%. There is also an indextation allowance taking into account inflation. On top of this allowance the seller is also entitled to a further allowance regarding the transfer fees paid and the costs of any additions or improvements made to the property. Any gains made from the sale of a property that can be proved to have been your primary dwelling house are exempt up to €85,430 in total if the seller has resided in the property continuously for at least five years. The aforementioned allowances are not avaliable separately and an individual claming a combination of the aforementioned allowances is only allowed a maximum lifetime allowance of €85,430. We strongly recommend that when considering to sell your property that thorough investigations are mad to assess your CGT liability, there are most definitely some grey areas where professional accounting and tax advice is necessary - Olive Properties can of course assist in obtaining advice where appropriate.
10) Inheritance Tax
Estate Duty was abolished in 2000.