lawyer Tag

by Andria Papageorgiou

Real Estate in Cyprus

A. Introduction to Cyprus Property Law

The Cyprus legal system is based on the British requirements as Cyprus was a British colony until 1960. Further, with EU membership, Cyprus property laws and regulations were harmonised in line with the European Union laws and regulations.

B. Cyprus immovable property law

Cyprus immovable property law was enacted in 1946. It is regarded as the cornerstone of immovable property in Cyprus, dealing with all matters concerning the tenure, registration, disposition, and valuation of immovable property within the framework of the Cyprus land registration system, in which immovable property is defined, drawn, recognised, and valued.

C. Land Registry Department

Every interest or right over or affecting immovable property (land, buildings, trees, plantations, rivers, wells, and all rights relating to estate and buildings) is registered and can be traced in the Registries of the Department.

Any information related to a potential purchase can be traced from Land Registry records prior to the completion of the transaction. Also, after the purchase, the contract of sale or title deed transfer is registered or takes place at Registry.

Submitting the contract of sale to the Land Registry gives the Buyer the right to seek specific performance of the terms and conditions of the contract. Thus, to register the property and title deed into the Buyer’s name once the title deed will be issued.

D. Purchase of Cyprus property by EU citizens

There is no legal obligation on EU citizens to require any permission to buy Cyprus real estate property. EU citizens are treated equally as Cypriot Citizens and can purchase real estate without any limits.

E. Purchase of Cyprus property by foreigners (non-EU citizens)

Non-EU citizens are entitled to buy properties in Cyprus, but they should apply for permission to register it in their names. This application is submitted at the District Office of the City that the property is situated after the contract of sale is signed. The permission is given to all Buyers, and this procedure currently is just a formality. The required time for obtaining permission is about 2-4 weeks.

Permission is allowed subject to some limitations which apply for each family (husband and wife). The limit is two units from the below:

• Apartment or house.
• A villa on a plot of land up to 4014 m².
• A plotland up to 4,014 m²provided that a residence is going to be constructed soon.
• For the acquisition of bigger plots of land or other property types (offices, commercial, industrial etc.) permission might be granted under certain conditions.

F. The Purchase Procedure

Step 1. Due diligence

After selecting a property to buy, it is highly recommended that the lawyer performs a due diligence check for the property, which mainly involve the following, further to express request of the Client (i.e. Buyer):

• Confirming with the Land Registry office that the property is free from any mortgages or burdens. In case the property has any mortgages or burdens, the lawyer arranges for the so-called waiver, which is a critical document that makes Buyer’s sales contract prevail any existing liabilities of the Seller to the bank in relation to the property in question.
• Negotiate the payment terms.
• In the case of a property under construction, the lawyer can ensure that all the necessary planning and building permits have been obtained; and to make sure architecture plans & specifications are attached to the relevant contract.
• In the case of a land purchase, the lawyer could verify the building Zones (how many square meters you can build on) and that the intended use, of any planned buildings, are permitted. In addition to the above-mentioned, the lawyer can also verify that utilities can be connected to the property.

Step 2. Reservation deposit & Agreement

Upon signing the reservation agreement, and payment of a reservation deposit, the property is taken off the market for a specific period of time until the contract of sale is prepared, and the parties are ready to finalise the transaction.

Reservation deposits vary depending on the price of the property and usually are 1-2% of the purchasing price.

Step 3. Contract of sale

Once all the preliminary steps above are made, the buyer and the seller can proceed signing a contract of sale. However, there are some general points to check before signing a sale contract to make sure the transaction is fair. These include:

1. 50% deposit paid on the signing of contracts;
2. 49% on delivery of property or in stages if under construction; and
3.  1% on transfer of title deeds

To ensure that the buyer is legally protected, the following actions must take place:

1. The Buyer must sign a valid contract of sale for property* free of any legal and financial commitments.
2. The contract must be signed, stamped and registered with the Land Office. This prevents the Seller/Developer from reselling or mortgaging the property before the transfer of title.
3. Possession of the property is completed when the property is delivered to the Buyer when the second payment is paid. At this stage the Buyer can connect the utilities (Water, Electricity & Telephone etc).
4. Transfer of the deeds in Buyer(s)’s name(s) will take place when:
5. The Buyer has a temporary Residency Permit or Council of Ministers Permit from the District Office
6. The Developer has completed the subdivision of the project and the Lands Office has issued a separate title.

If the Buyer is abroad, all the procedure can be done through a duly executed Power of attorney. It can be signed and certified in Cyprus or abroad at Cyprus Embassy or Consulate or be endorsed by Notary Public and bear the Apostille Stamp.

*Further to the announcement of the House of Representatives on the 2nd of April, only registered lawyers should draft sale agreements of real estate or other documents relating to property transactions. The suggestion was made by a member of the House and 32 other members voted in favour of it.

Before the recent new Bill, anyone could offer advice or draft legal documents regarding renting or buying immovable property. It was often the case that people lacked a clear understanding of the law and were wrongful in its application. This resulted in violations of the rights of the contracting parties. The amendment intends to prevent people who do not possess the necessary expertise on the subject from appearing as professionals.

Lawyers are considered to be experts and have the necessary knowledge and experience to prepare sale agreements or relevant documents. They have the expertise to provide clients with specialised advice on property matters. The lawyers who draft the agreements for tenancy or other transactions of real estate bears the legal responsibility as professionals.

The members of the House highlighted the distinction between a person who seeks professional services and someone who does not. In other words, people can seek friendly advice or gather information from anyone with knowledge of real estate. However, only the documents drafted by a registered lawyer will be regarded as binding.

Step 4. Registration of Contract of sale in the Land Registry

When contracts have been duly signed, the Buyer or his/her lawyer takes the signed contracts to the Inland Revenue Department to be stamped. Stamp duties are payable on each contract for the purchase of real estate depending on the purchase price (as below).

As soon as the signed contracts have been stamped then the Buyer (or his lawyer or representative) should take them to the Land Registry Department to be submitted/registered for Specific Performance purposes.

The Lands Office stamps the contract and records it in the Land Registry. It secures the buyer’s ownership rights until a separate title deed is issued.

Step 5. Transfer of title deed

If the seller has got a title deed (ownership certificate) for the property, the transfer of the title deed in the name of the new owner can be done immediately. Typically, this is the case when buying a resale.

If the property is brand new, in most cases the seller (developer) does not have a separate title deed for the property. Until that time, the ownership rights of the buyer are guaranteed by the registration of the sales contract at the Lands Office.

G. Taxes and Duties

Stamp duty

1. For Contracts with a value of €1 up to €5.000 there is no stamp duty payable.
2. For Contracts with a value between €5.000 up to €170.000 the stamp duty payable is of €1,50 for every €1.000.
3. For Contracts with a value over €170.000 the stamp duty payable is €2,00 for every €1.000 with a maximum stamp duty of €20.000.

If on an agreement or memorandum of agreement and all documents embodying any agreement there is no specific fixed value, then the stamp duty is €34.17.

The stamp duty is payable at once.

Transfer fees

The Land Registry Department required fees to be paid by the Buyer for transfers of immovable property. They are calculated by the Department based on the market value as estimated by them on the day of the transfer of the title deed and not based on the sales price.Transfer fees

1. The above transfer fees do not apply if the transaction is subject to VAT.
2. Currently Reduced by 50%.

H. VAT

• VAT at the rate of 19% is payable on the sale of new real estate projects.
• Resale properties are exempted from VAT.

The reduced VAT rate of 5% on the acquisition of primary and permanent place of residence in Cyprus

Any person that is buying the first permanent residence in Cyprus can apply for a reduced VAT rate at 5%.

The reduced rate of 5% VAT applies on the first 200 m² whereas for the remaining square meters, as determined based on the buildable area, the standard VAT rate is imposed.

The square meters for VAT purposes include only the internal covered areas (do not include covered verandas or other).

It is required that the property is to be used as the primary place of residence in Cyprus for the next ten years, rental of it is not allowed.

 The VAT on plots – Building land

VAT at the standard rate of 19% for the supply of undeveloped building land. The VAT is imposed in cases where the supply is intended for the erection of one or more constructions, and the supply falls within the course of a person’s economic or business activities.

It is noted that the supply of land is not subject to VAT in cases where the supply is an occasional transaction.

Cyprus Capital Gains Tax

Cyprus Capital Gains Tax is imposed (when the disposal is not subject to income tax) at the rate of 20% on gains from the disposal of immovable property in Cyprus. Including gains from the disposal of shares in companies which own immovable property directly.

Exemptions

The following are not subject to Capital Gains Tax:

• Lands or land with buildings acquired between 16th July 2015 and 31st December 2016 are exempt from CGT (subject to certain conditions) upon their disposal.
• Transfers arising on death.
• Gifts made from parent to child or between husband and wife or between up to third-degree relatives. Contributions to a company where the company’s shareholders are members of the donor’s family.
• Gifts by a family company to its shareholders

Calculations of Cyprus Capital Gains Tax

The costs that are deducted from gross proceeds on the disposal of immovable property are the cost of purchase, adjusted for inflation up to the date of disposal based on the CPI in Cyprus.

Also, construction works and improvement costs of the property are deducted.

Other expenses related to the acquisition and sale of real estate are also deducted, e.g. estate agency fees, transfer fees, legal fees.

Exemptions from Capital Gains Tax

Individuals can deduct from the capital gain the following:

• Sale of a private residence (subject to certain conditions) €85.430
• Sale of agricultural land by a farmer €25.629
• Any other transaction €17.086

Note: The above exemptions are lifetime exemptions with a total lifetime limit of €85.430.

Cyprus Inheritance Tax

There is no Cyprus Inheritance Tax as it has been abolished from the 1st of January 2000.

I. AP Law Firm

AP Law Firm has extensive experience and deals with all matters related to real estate, including purchase transactions and disputes, including commercial and residential property. Cyprus’ real estate market is rapidly evolving and expanding, and the opportunities for investment are in their peak. It is essential and highly recommended to engage the services of property lawyers who have sufficient experience and knowledge of the Cyprus real estate law and procedure.

Our Law Firm can assist through all the purchase procedure to make sure it is done smoothly and with maximum protection for the client’s interests. We are ready to approach each new client with extra care and attention to personal/financial needs and demands.

Areas of work include:

1. Due Diligence before Property Purchase
2. Drafting Property Reservation Agreements, Advice on the procedure to be followed
3. Real Estate Sale Agreements Draft or Review
4. Power of Attorney Preparation for Purchase or sale of Real Estate
5. Permission for Acquisition of property by foreigners
6. Land Registry Services
7. Real Estate Gift Transfers between family members
8. Rental agreements advice and preparation

Should you have any further questions, please do not hesitate to contact us at [email protected].

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.