The Financial Benefits To Property Ownership In Cyprus

Undoubtedly the time is right for investment in property in Cyprus, prices continue to rise steadily and the future for the property market looks bright, since Cyprus joined the EU and the imminent resolution to the "Cyprus Problem" with the north side giving cause for a buoyant future.

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:

1.) 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 can comfortably live on between CY£10,000 - 12,000 per year.

2.) Pensions from abroad are subject to a flat tax rate of 5%, with an initial annual allowance of CY£2,000 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.

3.) Investment income remitted from abroad is also subject only to a flat rate of 5%, again with an initial annual allowance of CY£2,000 being tax exempt.

4.) Interest earned on foreign capital remitted into Cyprus is tax exempt.

5.) Double taxation treaties concluded 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.

6.) Cyprus has long been an attractive location for offshore international companies to operate from with numerous tax advantages, not least 4.25% corporation tax. Whilst no longer considered an offshore haven, Cyprus is now classified as a tax efficient location due to changes in taxation laws, in line with the forthcoming EU accession. 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 CY£9,000 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.

Costs 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.

i) Financing & Mortgages
All commercial banks in Cyprus are authorised to offer mortgage facilities to assist foreigners (non-Cypriots) in the purchase of property. The amount that the banks are prepared to loan is discretionary, but typically 60% - 80% of the value of the property can be obtained, with a repayment period up to 15 years depending on specific circumstances (i.e. age and long term income). With entry  to the EU, many of the commercial banks are looking more favourably upon mortgages and are starting to offer special deals and generally making the process somewhat easier than in the past. OKCyprus Home Finder can help to point you in the right direction and arrange for you to meet appropriate financial advisors and banking personnel who can advise you.

ii) Legal Fees
The cost of a reputable solicitor experienced in property conveyancing is approximately CY£500 - CY£800 per contract of sale transaction, depending what is specifically involved. Don't be afraid to ask for a quote up front.

iii) 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 sliding scale as below:

• The first CY£100,000 charged at 0.15% (CY£1.50 per CY£1,000)

• Over CY£100,000 charged at 0.2% (CY£2.00 per CY£1,000)
  

Therefore on a property purchased for CY£150,000 the Stamp Duty would be calculated as follows:

CY£100,000 at 0.15% = CY£150
CY£50,000 at 0.2% = CY£100

Total Stamp Duty = CY£250

iv) Immoveable Property Tax
Immoveable Property Tax is somewhat of a quirky legacy from the past, as the tax itself is based upon the value (like the old UK rateable value) of the property as at 1980, which obviously is considerably lower than current market values. Given that the first CY£100,000 (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 CY£100,000 is exempt

• Between CY£100,001 and CY£250,000 is charged @ 0.25% (CY£2.50 per CY£1,000)

• Between CY£250,001 and CY£500,000 is charged @ 0.3% (CY£3 per CY£1,000)

• Over CY£500,000 is charged @ 0.4% (CY£4 per CY£1,000)

v) Insurance
Property insurance against fire and associated hazards is advisable, the cost being approximately CY£50 - 150 per year. Household insurance is the responsibility of the purchasers and can be obtained for approximately CY£2 per CY£1,000 sum insured per year. 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.

vi) Utilities & Municipality Levies
Charges for utilities are payable to the respective authorities at regular intervals throughout the year and are based strictly upon unit consumption, an approximate estimate for both water and electricity would be CY£200 per year for an average 3 bedroom villa occupied on a residential basis. 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 CY£30 - 100 per year.

vii) Relevant Common Expenses
Some Projects will have communal 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. This is usually paid quarterly in advance and amounts to no more than CY£300 p.a. depending on the Project and size of the property.

viii) Transfer Fees
Upon transfer of the property and registration in the purchasers name, the District Land Registry Office will charge Transfer Fees, which are calculated on a progressive sliding scale, on the market value of the property at the time of purchase, and are calculated as follows:

• The first CY£50,000 charged @ 3%

• Between CY£50,001 and CY£100,000 charged @ 5%

• Over CY£100,001 charged @ 8%

Therefore an example purchase of CY£150,000, would be calculated as below:

• CY£50,000 @ 3% = CY£1,500

• CY£50,000 @ 5% = CY£2,500

• CY£50,000 @ 8% = CY£4,000

Total Transfer Fee = CY£7,500

However the good news is that if a property is bought 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 £CY150,000:

• Partner 2 CY£50,000 @ 3% = CY£1,500

• Partner 1 CY£50,000 @ 3% = CY£1,500

• Partner 1 CY£25,000 @ 5% = CY£1,250

• Partner 2 CY£25,000 @ 5% = CY£1,250

Total Transfer Fee = CY£5,500

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 2 years from project completion.

ix) Capital Gains Tax
Upon the sale of your property you could be liable for CGT. A capital gain of CY£10,000 per person (therefore CY£20,000 for a married couple) above the property purchase price is tax free, thereafter CGT is chargeable at 20%. There is also an indexation 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 CY£50,000 in total if the seller has resided in the property continuously for at least five years.

x) Inheritance Tax
Estate Duty was abolished in 2000.