Cyprus Property Taxes

In Cyprus, any real estate transaction, whether it involves buying, selling, or renting, is subject to mandatory taxes. The country's tax laws apply to all market participants, regardless of residency status. This means that both residents and non-residents must comply with tax obligations related to property ownership and management.

In 2024, Cyprus introduced several changes to its tax policy, including new measures to optimize the tax system. Our article provides an overview of Cyprus property taxes and the country's overall approach to taxation.

Tax Residency in Cyprus

The key criteria for determining tax residency in Cyprus are the 183-day and 60-day rules. The first is an internationally recognized standard for establishing tax residency. Under this rule, an individual is considered a tax resident of Cyprus if they spend at least 183 days in the country within a calendar year. In this case, all of their income, even if earned outside Cyprus, is subject to taxation.

In 2017, an alternative 60-day rule was introduced, allowing individuals to obtain tax residency in Cyprus with a shorter period of stay. To qualify, one must have economic interests in Cyprus (such as property or business) and not hold tax residency in another country.

Tax in Cyprus for a resident offers several benefits, the most significant of which are tax advantages. For example, residents are exempt from capital gains tax in Cyprus on the sale of shares (provided the shares are not related to real estate in the country) and can benefit from low tax rates on dividends and interest. Additionally, a major advantage is the significant reduction in VAT on the first 130 m² of residential property purchased, reducing the VAT by nearly four times. Cyprus tax rates for foreigners (non-residents) are the same, but they are only taxed on income earned within Cyprus.

Taxes on Buying Property in Cyprus

Purchasing property in Cyprus involves paying taxes and fees, such as VAT, stamp duty, and title transfer fees. Some of these costs can be significant, particularly VAT, which has a rate of of 19%, a considerable amount given the property prices. However, buyers may qualify for tax reliefs that can reduce the VAT burden by up to 14%, allowing for substantial savings.

Value Added Tax (VAT)

VAT is a mandatory tax when purchasing new residential property. The standard Cyprus VAT rate on such purchases is 19%. However, for first-time buyers who intend to use the property as their primary residence, a reduced VAT rate of 5% applies. To qualify for this reduced rate, buyers must provide proof that they do not own any other property in Cyprus that is used as their primary residence.

In 2023, important changes were made to Cyprus's real estate tax legislation under Law Ν. 42(Ι)/2023, affecting the reduced VAT rate: 

• The 5% reduced VAT rate applies only to the first 130 m² of the property. The value of the property must not exceed €350,000, and the total transaction value must not exceed €475,000.
• For properties larger than 130 m² but less than 190 m², the first 130 m² are taxed at the reduced rate of 5%, while the remaining area is taxed at the standard rate of 19%.
• If the property's value exceeds €475,000 or its size exceeds 190 m², the reduced rate does not apply, and the entire property is taxed at the standard VAT rate of 19%.

Calculation example of VAT in Cyprus:

Stamp Duty

The buyer pays Cyprus stamp duty when signing the property sale contract. If immediate payment is not possible, it can be made within thirty days of signing the contract. The stamp duty rate varies depending on the value of the property:

• The first €5000 of the transaction value is exempt from taxation.
• 0.15% on the amount from €5001 to €170,000.
• 0.20% on the amount over €170,000.
• The maximum stamp duty is capped at €20,000 per document.

A fixed stamp duty rate may apply for property lease contracts, depending on the lease duration, ranging from €1.5 to €5 for each rental year.

Stamp duty calculation example:

Title Deed Transfer

The Cyprus property title deeds, or real estate title transfer fees, is charged by the Cyprus Department of Lands and Surveys. The rate is quite flexible and directly depends on the property's value:

• 3% on the first €85,000 of the property value.
• 5% on the amount from €85,001 to €170,000.
• 8% on the amount over €170,000.

Example of title transfer fee calculation:

Tax Reduction Opportunities

Cyprus offers various benefits and schemes to reduce the tax burden when purchasing real estate. As previously mentioned, there is a reduced VAT rate of 5% available on the first 130 m² when purchasing a first residential property.

Exemption from the title deed in Cyprus may be available if the property is purchased under certain government incentive programs, such as those for foreign investors. However, in such cases, the future owner may face restrictions on selling or altering the ownership conditions for a specified period (typically 3–5 years).

Stamp duty can be avoided if the property purchase is subject to Value Added Tax (VAT), which is often the case for new housing that is mandatorily taxed. In other situations, stamp duty is not charged if:

• The transaction is conducted through governmental or charitable organizations and is considered to serve the public interest.
• The transaction is carried out under state subsidy or social welfare programs.
• The document or transaction has special significance for public welfare.

When purchasing a house, villa, or apartment in Cyprus under the name of multiple individuals, such as spouses or relatives, the taxable amount of each share is reduced, lowering the tax percentage. This method is legal and allows for savings when purchasing property in Cyprus.

Selling Property Taxes in Cyprus

When selling residential property in Cyprus, it is important to consider several taxes that can significantly impact the final amount of the transaction. The first and most substantial is the Capital Gains Tax. The second is the Immovable Property Transfer Levy (IPTL), which is less significant. Capital gains tax in Cyprus for non-residents applies only to their in-country income.

Capital Gains Tax is charged on the net profit from the sale of property. It is set at 20% of the taxable gain, calculated as the difference between the sale and purchase price of the property, adjusted for inflation. Additionally, expenses for property improvements, such as capital repairs, legal services, and realtor commissions, are deducted from the profit.

Taxpayers are entitled to certain exemptions. The first €17,086 of profit per owner is exempt from tax. If the seller has owned the property for more than five years and this is the first property sale in Cyprus, the exemption limit increases to €85,430. 

Capital gains tax in Cyprus example: if a property was purchased for €100,000 and sold for €117,086, no tax is due. After five years of ownership, up to €185,430 is exempt from taxation.

The Capital Gains Tax in Cyprus does not apply to farmers' sales of agricultural land or to the transfer of property through inheritance or as a gift to close relatives.

The Immovable Property Transfer Levy (IPTL), or Cyprus immovable property tax, was introduced in 2021 and is a 0.4% levy on the sale value of real estate. The levy is applied to each property sale and paid by the seller. It applies regardless of the property type or whether the buyer is a Cyprus resident. However, for transactions subject to VAT, the IPTL is not charged.

For transactions not subject to VAT, a 50% reduction in the IPTL is granted if the property is being purchased on the secondary market and VAT was already paid during the initial sale.

Rental Income Taxation

When renting out property, the owner is required to pay tax on rental income in Cyprus. These taxes depend on the rental type, the income amount, and the taxpayer's status. The primary tax is the Income Tax, which in Cyprus is progressive, meaning the tax rate increases proportionally with the income earned. The tax is applied after deducting all additional expenses, such as repairs and depreciation.

The Special Defense Contribution (SDC) is levied only on Cyprus residents. It applies to both residential and commercial properties that are rented out. In 2024, the rate is set at 3% of the gross rental income. The landlord self-assesses the tax and pays it quarterly. Exemptions or even full relief from the SDC may be granted if the property is rented to family members, such as spouses, children, or parents.

Taxes Associated with Cyprus Property that Owners Should be Aware of

In 2017, the Cypriot government issued a decree abolishing the property tax. Instead, the government is focusing on improving the efficiency of existing taxes and fees, combating tax evasion, and developing new taxes. One of the most discussed projects currently is the 'green' tax, which will apply to fuel used in sectors not covered by the EU Emissions Trading System. The possibility of introducing a water tax is also being considered due to the depletion of local freshwater sources. Other types of taxes and fees include:

• Municipality property tax in Cyprus: municipal fees include payments for various services such as waste collection, street lighting, and infrastructure maintenance. These fees are levied by local municipalities and apply to property owners. The amount of municipal fees can vary significantly depending on the property's location and the decisions of the specific municipality. For example, waste collection fees can range from €80 to €300 annually. Fees are usually calculated based on the property's size, type (residential or commercial), and the level of services provided in the area. Some municipalities may also charge additional fees for maintaining parks and public spaces.
• Building permit fees: these are charged for issuing permits for constructing new buildings, renovating, or expanding existing properties. The process of obtaining a permit includes verifying that the project complies with building codes and regulations. The fee for a building permit ranges from 1% to 3% of the total construction or renovation cost.
• Utility connection fees: these fees are applied when connecting a property to utility networks such as water, gas, electricity, and sewage. The cost of utility connections can vary depending on the type of property and its location. For example, connecting to the electrical grid can cost between €500 and €2000. The amount depends on the distance to existing networks and the complexity of the connection. For new developments in remote areas, costs may be higher due to the need for additional infrastructure, such as laying new pipes or power lines.
• Annual licensing fees for operating commercial property: these fees are charged to commercial property owners for the right to conduct business within the municipality. This includes payments for permits for certain activities, such as trade, providing services, or placing advertisements on the building's facade. The amount of licensing fees depends on the type of business and its location. For example, retail stores in tourist areas may face fees ranging from €100 to €1000 per year, depending on the type and size of the business and the category of license required for its operation.

In addition to individual property taxes, Cyprus also imposes a separate corporate tax on legal entities. Companies are required to submit annual tax returns using accurate financial reports no later than December 31st. The standard tax rate is 12.5% on the company's worldwide income, including income generated in Cyprus. This tax also applies to the company's subsidiary properties.