Sale of real estate, capital gains tax, and other taxes for Cypriot companies and individuals Capital Gains Tax on Cypriot Real Estate
Capital Gains Tax Rate on Real Estate
The Cypriot capital gains tax with a rate of 20% is imposed on the net profit resulting from the disposal of real estate in Cyprus, as well as profits from the disposal of shares in companies that own real estate in Cyprus and are not listed on any recognized stock exchange, and rights arising from real estate sale agreements located in Cyprus. As of December 17, 2015, the Cypriot capital gains tax is also imposed on capital gains from the disposal of shares in companies that indirectly own real estate in Cyprus, provided that the market value of the real property exceeds 50% of the market value of these shares.
Cypriot capital gains tax is also imposed for the transfer, exchange, lease, gift, abandonment of the right to use, assignment of the right to purchase, and any amounts received upon the cancellation of the disposal of property.
Taxable Capital Gains on Real Estate
Taxable capital gains are derived from the difference between the sales income and the initial value of Cypriot property, adjusted for inflation based on the Consumer Price Index in Cyprus. If the real estate was acquired before January 1, 1980, capital gains are calculated based on the difference between the selling price and the market value as of January 1, 1980. The market value on July 14, 1974, can be used if chosen by the owner. Capital gains, according to the December 17, 2015 law amendment, are defined as anything not subject to income tax.
Expenses related to the acquisition and disposal of properties are also deductible from capital gains, subject to certain conditions, such as interest on related loans, transfer expenses, legal expenses, etc.
Calculation of Taxable Capital Gains in the Case of Transfer, Sale, or Disposal of Shares in a Company that Owns Real Estate
The following factors are considered in the case of the transfer, sale, or disposal of shares in a Cypriot company that owns real estate:
[a] The real estate of the company is separated, and its market value as of the date of the sale of shares is determined.
[b] The market value as of 1/1/1980 or the date of acquisition of the property, or the date of acquisition of shares from the seller, whichever is later, is taken into account. The value of the shares is disregarded as it includes the values of other elements.
The shareholder of a company that may also be involved in real estate trading is subject to Capital Gains Tax on the profit from selling the company’s shares. These are two different entities: the company is subject to income tax for the profit it made from the real estate sale, while the shareholder is subject to Capital Gains Tax for the profit from selling the shares of the company.
Exceptions for Real Estate Capital Gains
The following exceptions are available to individuals for their lifetime:
- The first €17,086 of taxable gains resulting from the sale of Cypriot property.
- The first €25,629 of taxable gains from the disposal of agricultural land by a farmer (under specific conditions).
- The first €85,430 of taxable gains from the sale of a residence used by the owner for personal occupancy (subject to certain conditions).
- All of the above exceptions are subject to a lifetime maximum limit of €85,430.
Exempt Real Estate Transactions
- Transfer of property due to inheritance.
- Donations among relatives up to the third degree of relationship, including spouses, siblings, grandparents to grandchildren, and uncles to nieces/nephews.
- Donation to a Cypriot limited liability company where all shareholders are members of the same family and continue to be members of the family for at least five years after the donation.
- Donation to the Republic, local government authorities, and charitable foundations.
- Donations made by a family company to its shareholders provided that it was acquired through a donation and remains with the recipient for at least three years.
- Transfers due to restructuring (under certain conditions).
- Gains from the sale of land and buildings acquired between July 16, 2015, and December 31, 2016.
- Exchange or disposal of real estate in accordance with the Laws on Agricultural Land (Consolidation).
- Donations to a political party.
- Exchange of Cypriot property where the value at the time of acquisition of the property is equal to or greater than the value of the property being exchanged, in which case tax is payable on the entire gain from the disposal. For example, if the value of a property being disposed of is €100,000, the value at the time of acquisition is €80,000, and the value of the property being received in exchange is €60,000, the taxable gain is €20,000. In cases where the value at the time of acquisition is lower than the value of the property being exchanged at the time of the exchange, tax is only payable on the gain that was not used to acquire the other property. For example, if the value of a property being disposed of is €100,000, the value at the time of acquisition is €80,000, and the value of the property being received in exchange is €88,000, the taxable gain is €20,000, and the untaxed gain is €8,000. In this case, the cost of acquiring the new property that enters the possession of the donor is reduced by the amount of the gain that was not taxed. For example, the cost of the new property is €88,000 minus the untaxed gain of €8,000, resulting in a new cost of €80,000.
Contribution to the Central Body for Equal Distribution of Burdens
- A seller who transfers real estate located in areas controlled by the Republic of Cyprus is subject to a contribution equal to 0.4% of the sale proceeds.
- A similar contribution is also owed in the case of the transfer of shares to any company that holds such real estate, provided that the buyer gains control of the company. The contribution, at a rate of 0.4%, is calculated based on the last valuation of the real estate carried out by the Department of Lands and Surveys.