The beautiful island of Cyprus, superbly located on the cusp of Europe and the Middle East, is a wonderful place in which to take out a residency with a view to a second citizenship. Offering a dramatic land and seascape, a warm climate, safe environment and high standard of living, plus visa-free travel to 173 countries worldwide, beneficial business and tax arrangements, no residency requirement and a speedy application process, it is understandably an attractive and much sought-after destination for those wishing to secure a second passport.
The island’s Residency by Investment program offers investors the opportunity to obtain residency, with the option to acquire citizenship after 5 years of residency.
One of the requirements of the Residency by Investment program is a substantial investment in purchasing real estate.
Feel free to browse our carefully curated portfolio of high-quality properties, which we know will be appealing and offer great investment opportunities. Our team of international property experts have all the latest news and information on real estate in Cyprus and will be happy to advise you and take you through the process of property acquisition. Contact us here for a free, no-obligation consultation.
What Are The Requirements?
There are a number of conditions attached to the purchase of property for Residency by Investment in Cyprus:
- The real estate must have a minimum value of €300,000
- Properties must be bought from the construction company to ensure that they are newly constructed, as buying secondary real estate is not permitted
- Properties of mixed types may be purchased, covering residential and commercial real estate, and several properties may be purchased to bring the investment to the minimum value
- The property can be bought by a company, provided the company is registered in the name of the applicant or the applicant’s spouse and they are sole shareholders
- Individuals who own any property under the EU’s sanctions are not permitted to participate in the program
What Is The Process?
Although the property acquisition process (described below) is relatively straightforward with a number of sequential steps to be followed, it is vital to seek expert advice so that nothing is overlooked, for example with tax implications that the buyer may not be aware of. Our experienced team are on hand to guide you from start to finish, ensuring a smooth and speedy process.
- Find and reserve your real estate: The property is identified and an agreement is made to purchase at a specific price. The buyer pays a non-refundable reservation fee.
- Start the due diligence and conveyancing process: The lawyer carries out all the necessary checks to ensure the current ownership of the title deeds of the property.
- Negotiate and draw up the contract: The lawyer draws up or reviews the contract of sale and does all necessary work to ensure the terms of the contract are carried out.
- Apply for a reduced VAT rate: While the VAT rate on new properties is 19% as standard in Cyprus, the buyer is eligible to apply for a reduced rate of 5% which is applicable to a primary residence, subject to certain terms and conditions.
- Register the contract for sale with the Land Registry Office: This ensures that the buyer has full legal protection.
- Obtain official “Permission To Acquire Non-Movable Property” in Cyprus: This only applies if the buyer is from a non-EU country and must take place before the title deed transfer.
- Title deeds are transferred: The final stage in the process. Buyer and seller appear at the Land Registry Office with their separate title deeds and the transfer of ownership is completed along with payment of any transfer fees required.
What Types Of Property Tax And Fees Apply?
There are various local taxes and fees that should be taken into account when considering the purchase of real estate in Cyprus. Listed below is a brief guide, meanwhile our advisers have more detailed knowledge and are happy to advise on all tax considerations:
- VAT: VAT on new properties is usually 19% of the property price. However buyers can apply for a reduced rate of just 5% if the property is classed as their primary residence, subject to certain terms and conditions.
- Municipality Tax: Rates are set by the local municipality and are calculated based on the value of the property according to the last Government valuation (01/01/2018). Rates are usually around 0.1% – 0.2% of the property value.
- Sewerage Tax: Like the Municipality Tax rates are based on the value of the property and are typically between 0.05% and 0.3% of the property value.
- Refuse Collection Fee: An annual charge set by the municipality, depending on the property size. An example for a three bedroom holiday house in a resort would be around €140.
- Capital Gains Tax: Capital Gains Tax is payable at 20% of the profit gained on disposal of the property.
- There is no Inheritance Tax or Immovable Property Tax payable.
What Other Charges Are There?
There are some additional charges that will need to be taken into account when budgeting for your purchase of real estate in Cyprus:
- Stamp Duty: This can vary between 0.15% and 0.20%, according to the property’s value. It should not usually exceed €20,000.
- Transfer Fee: If the buyer is simply buying property (but not using this property as part of the residency by investment application), they may buy on the secondary market and will pay a transfer fee. This depends on the value of the property and is usually charged at around 3% to 8%
- Solicitor’s Fees
Are There Any Restrictions On Buying Property In Cyprus, Particularly Post-Brexit?
- UK citizens who wish to purchase Real Estate in Cyprus are freely able to do so, following the same rules and regulations as any other non-EU citizen, but an application must be made to the Council of Ministers, which can be a lengthy process. In the meantime the sales contract can be signed and registered with the Land Registry Office, however the title deeds do not become the purchaser’s until the approval has been granted from the Council of Ministers. It is advisable to have a clause in the purchase contract which would protect the buyer’s interests in the unlikely event that permission from the Council of Ministers was denied.
- There is a restriction on the plot size purchased, which must not exceed 4,014 sq metres.
- The amount of time the purchaser is able to live in the property without becoming a resident is limited to three months in any six-month period, therefore in order to spend more time in the property and in the country, the buyer will need to start the residency application process, described later in this article.
- The range of mortgages available may be slightly more restricted when buying abroad, so it is advisable to consult properly qualified and experienced experts who are able to give appropriate advice.
Our highly experienced international experts at Astons will be delighted to help you with this and all aspects of buying your property and/or gaining residency in Cyprus. Contact us here for a free, no-obligation consultation with one of our team.
Beneficial Tax Arrangements On Purchase Of Property In Cyprus
One of the advantages of investing in real estate in Cyprus is the beneficial tax arrangements surrounding the purchase.
When purchasing from a developer the property cost will include the VAT tax of 19%. However, there are some benefits for people purchasing real estate in Cyprus for the first time. Such investors can pay just 5% of tax on the first 200 m2 of living space instead of 19% since 14% can be returned by a tax deduction.
In the secondary market, there is no VAT tax but it is required to pay a tax on a transfer of ownership. The tax rate depends on the property cost and can be from 3% to 8%.
What Possible Issues Might Arise During The Purchase Process?
It is vitally important that due diligence is carried out by a suitably qualified person before and during the purchase, as there are a number of issues that the buyer should look out for:
- The buyer should use properly qualified and experienced real estate agents and legal advisers, who have a good reputation and are fully knowledgeable about the area and any rules and restrictions which might apply.
- Checks on the lawyer need to be made in order to guarantee that they do not have a connection with the developer, the vendor or the estate agent. This will ensure that the lawyer is acting in the buyer’s best interests. A lawyer who is also acting for the vendor, as is often common, cannot be independent and this is risky for the buyer.
- The land on which the property stands should not be mortgaged, but be owned outright by the seller. It is a common issue that the developer is paying a mortgage for the land, which presents a significant risk to the purchaser as it is likely that they will become liable for the mortgage if the developer goes bankrupt. With any contract signed by a buyer for land or property that is mortgaged, the purchaser needs to be aware that the title deeds will not become theirs until any mortgage is paid off. This is clearly not a risk-free move for a potential buyer and a good lawyer who is acting in the buyer’s best interests, should advise accordingly.
- When buying off-plan the purchaser should look at completed properties by the same developer, to check the quality of construction and decoration.
- The buyer should be clear about how the property will be maintained.
- If the property needs renovation, the buyer will need to be aware of the ease of access to services and utilities, and will also need to be advised about any planning rules or restrictions which may affect their ability to improve or extend the property.
What Is The Process For Gaining Residency in Cyprus After The Purchase?
As the UK is no longer a member of the European Union, there are restrictions on the amount of time a UK citizen can spend in Cyprus without becoming a resident, so it is advisable that if they wish to spend more time in Cyprus, they apply for residency. Without residency they can be in the country for a maximum of three months in any six-month period. While this may suit some investors, they are able to have considerably more freedom if they become residents.
There are other advantages to residency: beneficial tax arrangements, a high standard of living, access to world-class healthcare and education and visa-free travel to 173 countries.
The process is relatively straightforward and opens the door to full citizenship, which can be gained after seven years of residency.
Residency of Cyprus is gained through the purchase of property with a minimum value of €300,000. The property must be purchased from the construction company, ensuring that it is newly constructed, as buying secondary real estate is not permitted in the Residency by Investment program. A permanent residence permit can also be obtained by purchasing several properties including both residential and commercial real estate. The property is permitted to be bought by a company, provided that the company is registered in the name of the applicant or the applicant’s spouse, and they are sole shareholders.
Under the program, the applicant is not required to live in Cyprus permanently. They must visit the country to submit biometrics within a year of the application and must further visit at least once every two years. The residence permit is valid for five years and can be renewed indefinitely, though the investor may decide to apply for full citizenship of Cyprus after having been a resident for seven years. The permit is extended to the applicant’s spouse, parents and any unmarried children under 25 years of age.
Additional requirements to the investor for permanent residence acquisition:
- Applicants must not have criminal records in any countries where they have ever lived
- Applicants must not be employed in Cyprus, though it is permitted to have a business in the country and make an income from it
- Applicants must confirm annual income earned outside Cyprus not less than €30,000. The sum increases by €5,000 per family member if a spouse or/and children are included in the application. It also increases by €8,000 per each of the parents
- Individuals who have any property under the EU’s sanctions cannot participate in the program
- Applicants must visit Cyprus within a year as soon as the permanent residence is approved, in order to submit biometrics and receive their PR card. All family members included in the application must visit the country at least once every two years
- The main applicant must be at least 18 years old
- The credibility of the applicant must be checked and approved by an authorised foreign company
Taxation For Foreign Nationals In Cyprus
Any investor purchasing real estate in Cyprus needs to know about the tax implications of their investment and if they intend to be resident in the country there will be further tax rules to take into consideration. Cyprus has very favourable tax arrangements for foreign nationals, making the country particularly attractive to those UK, USA and other countries residents looking to retire, set up a business and invest in Cyprus.
The country has Double Taxation Treaties (known as DDT) with over 60 countries, to ensure that foreign nationals are not taxed twice on the same income (in both their native country and the country of their second residency or citizenship). The DDT will state which taxes are to be paid in each country.
Investors can become tax residents of Cyprus simply by residing there for more than 60 days per year, while spending no more than 183 days per year in any other country. They must not be a tax resident in any other country.
In addition, the country has a Non-Domicile tax program (known as Non-Dom Cyprus) whereby a person who relocates to Cyprus and takes up tax residency there is regarded as having non-domiciled status and can stay under this status for 17 years. To qualify they must show that they have a domicile outside of Cyprus and that they have not been a tax resident of Cyprus in the last 20 years before the tax year that they take out this status.
Under the Non-Domiciled status, tax residents are exempt from certain taxes that are levied upon citizens of Cyprus. Among these are the SDC (Special Contribution for Defence) tax on dividends, interest and rental income, regardless of where the income originates.
In addition, Non-Doms in Cyprus are exempt from capital gains tax, and are granted a reduction of 50% on land transfer fees on properties acquired before 31 December 2016. They are also exempt from paying wealth, gift or inheritance taxes in Cyprus.
The Non-Domiciled status is valid for 17 years. Once a person has been a tax resident for 17 out of the last 20 years, their status changes to “Domiciled” in Cyprus, and these tax exemptions no longer apply.
For business owners, the corporate tax on most businesses is 12.5% on profits, and there is a 2.5% tax on royalties received from intellectual property rights held in Cyprus.
Income Tax For Foreign Nationals
Personal income tax is on a tiered rate dependent on earnings. There is a generous €19,500 allowance before income tax starts to be paid. Tax of 20% is payable on income between €19,501 and €28,000 while income between €28,001 and €36,000 is liable for tax at 25% and income between €36,001 and €60,000 is taxed at 30%. The maximum level of income tax is 35% on income over €60,000.
For those taking up employment in Cyprus (provided they were non-resident in the country before the employment) there is an allowance of 20% remuneration up to a maximum of €8,543 for three years, while those earning over €100,000 are eligible for an allowance of up to 50% for five years.
UK nationals receiving a pension while living in Cyprus, whether it is a private or public pension, have a choice of taxation schemes. They can either:
- Pay a fixed rate of tax of 5% on their pension income for amounts over €3,420, OR:
- Choose to be taxed according to the tiered income tax system
These options do not have to be permanent; the person in receipt of the pension is allowed to switch between the two systems on a yearly basis, the advantage being the amount of income that can be tax-free (€19,500) before taxation kicks in under the tiered system. Those on smaller annual pensions are usually better off opting for the tiered taxation system as they will be able to earn more before being taxed.
Buyers of real estate in Cyprus for Residency by Investment purposes, are able to take advantage of the reduced property VAT rates described elsewhere in this article, making Cyprus an even more attractive destination for property ownership and residency.
Cyprus is clearly an attractive and extremely popular destination for those looking to invest in property, offering many benefits and opportunities for the buyer. With our extensive portfolio of desirable real estate in Cyprus, and our experienced and knowledgeable team of international property and legal experts, Astons is superbly placed to guide you smoothly through all aspects of property purchase and residency acquisition.
For a free, friendly and no-obligation consultation, simply contact us here.