Purchasing a house in Cyprus: Key Tax Obligations Explained
Are you thinking of buying a property in Cyprus? Whether you are in the hunt for a permanent residence, a retirement retreat, or a lifetime consumers need to have a firm grasp on the tax situation in the country before making any lifetime commitments. Knowing what to expect regarding government charges and upkeep duties will make the process simpler and more financially reliable.
Cyprus has an open and stable property market but, as with any property purchase, the act also comes with a number of taxes and fees that are due either on purchase or ownership. Here in Arena properties, experts in real estate in Cyprus and property investment, we believe that informed decisions are the only correct approach, and for this reason we have prepared a guide that with an aim to assist buyers in making the right choice and aid our clients navigating through the Cypriot property market with confidence and ease.
The following is a list of the main taxes and fees payable by Cyprus property buyers.
Value Added Tax (VAT)
Value Added Tax (VAT) is a major cost of purchasing property in Cyprus. It is predominantly levied on new houses, i.e., property being sold for the first time by a developer upon development. The standard VAT rate is 19% of the purchase price. VAT is offered at a reduced rate of 5% only to buyers who will occupy the property as their sole and permanent residence in Cyprus.
To be eligible for this benefit, the buyers must meet specific conditions of Cypriot legislation: the preferential rate can be applied to the first 130 square meters of covered area, or 200 square meters for planning permits acquired up to 31 October 2023, provided the purchase is completed by 15 June 2026; the price of the house must not surpass €475,000, and the preferential VAT can only apply to the first €350,000 of the price; the total covered area must not surpass 190 square meters in total. This incentive encourages home ownership and offers considerable savings for people planning to live on a permanent basis in Cyprus. It is worth noting that resale apartments (second-hand property) are exempt from VAT, thereby representing an excellent investment opportunity for most clients who are planning to buy apartments at lower initial prices.
Stamp Duty
All property sale deeds must be stamped and registered with the Land Registry in Cyprus. Stamp Duty is calculated based on the property purchase price as a percentage and protects the buyer’s legal rights on the property. The fees can be calculated as follows:
Purchase Price (€) | Stamp Duty Rate First €5,000 | 0% €5,001 – €170,000 | 0.15% Over €170,000 | 0.20% (max €20,000)
Though Stamp Duty is quite a small amount in relation to other levies, securing the contract safeguards the interest of the buyer in the property in law.
Property Transfer Fees
Transfer Fees are paid upon placing the title deed for the property on the buyer’s name at the Land Registry. The fee is on a sliding scale according to the market value of the property:
Property Value (€) | Transfer Fee Rate to €85,000 | 3% €85,001 – €170,000 | 5% Over €170,000 | 8%
There are, however, some significant discounts and exemptions: there are no transfer fees to be paid if VAT had previously been paid when buying the property; if VAT was not paid (when dealing with resale properties), the buyer owes a 50% reduction on transfer fees; in joint buying, such as when two people buy, the property value is split among them half-and-half, lowering the percentage that applies.
These laws make the Cypriot system quite equitable and encourage formal documentation of property deals.
Capital Gains Tax (CGT)
Capital Gains Tax does not apply when buying a property, but it applies when you are also considering the purchase as an investment in the future. It is therefore important that investors and homeowners understand how it works. In Cyprus, Capital Gains Tax at 20% is levied upon profit arising from disposal of immovable property in the Republic. It is levied on the amount of the sale consideration minus the original cost of purchase, minus allowable expenses.
Certain allowances and exemptions reduce considerably the amount taxable: the initial €85,430 of profit are exempt where the disposing property is the main residence of the seller; gifts between relatives or inheritances are generally exempt from Capital Gains Tax; improvements and inflationary increases are allowable when calculating the gain.
For longer-term investors, it could be worth thinking ahead with Capital Gains Tax in mind to get maximum returns in the long term.
Recurring Local Charges and Taxes
Following the purchase of the property, owners will also have to account for recurring local taxes and community charges. These are comparatively low in the rest of Europe but must still be provided for. Municipal and Refuse Taxes are typically in the range of €300 to €400 per year, depending on size and location of property; Sewerage Tax is typically in the range of €150 to €400 per year; Communal Charges for flats and homes in residential developments are €500 to €600 per year for the maintenance of communal facilities and areas.
Significantly, the Immovable Property Tax (IPT) — previously a national property tax — was abolished in 2017, simplifying ownership in Cyprus.
Overview of Principal Property Taxes and Fees
Tax / Fee Type | Amount / Rate | Applies To VAT | 19% (general) / 5% (reduced) | New property Stamp Duty | 0.15%–0.20% | All property purchases Transfer Fees | 3%–8% (50% discount for second-hand) | Resale property Capital Gains Tax | 20% of gain (with exceptions) | Sales of property Municipal Taxes | €300–€400 per year | All property owners Sewerage Tax | €150–€400 per year | All property owners Communal Fees | €500–€600 per year | Apartment buildings
Final Thoughts
Cyprus is a very appealing choice for homebuyers and investors alike, with a Mediterranean climate and chilled lifestyle backed by a stable and straightforward property market. Understanding the tax implications — from VAT and Stamp Duty to Transfer Fees and Capital Gains Tax — allows buyers to plan ahead and avoid any unpleasant shocks. For permanent residents, the 5% reduced VAT rate is an important advantage, whereas for investors the design of the Capital Gains Tax will be equitable and transparent. With the consultancy of the proper professional advisors and with comprehensive knowledge of the tax burden, buying property in Cyprus can be a problem-free, successful, and financially rewarding experience.
For personal guidance on purchasing property in Cyprus or paying your tax contribution, contact Arena Properties. Our experienced and will be happy to assist you every step along the way through your property experience.
