Cyprus capital gains tax on immovable property (real estate) for Cyprus companies and individuals
1. Cyprus capital gains tax rate on immovable property (real estate)
Cyprus Capital gains tax is levied on gains from the disposal of Cyprus property (immovable) at the rate of 20%, as well as gains from the disposal of shares in Cyprus companies owning immovable property and are not listed in any recognised stock exchange and rights arising from a sales agreement of immovable property situated in Cyprus. As of 17 December 2015 gain from the disposal of shares of a company that owns indirectly immovable property in Cyprus, is subject to Cyprus capital gain tax, provided that the market value of this property exceeds 50% of the shares market value.
Cyprus Captial Gains Tax is also levied on the disposal, exchange, leasing, gifting, abandoning the use of right, granting of the right to purchase, and any sums received upon cancellation of disposals of property.
2. Taxable capital gain on immovable property (real estate)
The taxable capital gain is the difference between the gross proceeds and the original cost of the Cyprus property increased with any improvements as adjusted for inflation up to the date of disposal and based on the consumer price index in Cyprus. In the case the property has been acquired before 1 January 1980, the capital gain is the difference between the gross proceeds and the market value of the property as was at the 1st of January 1980. The market value as was on the 14th of July 1974 can also be chosen for calculation if the owner chooses to do so. The definition of capital gain, in accordance with the amendment of the law on 17 December 2015, includes also any gain/profit that does not fall under income tax law. Expenses that are related to the acquisition and disposal of immovable property are also deducted, for capital gain purposes subject to certain conditions e.g., interest costs on related loans, transfer fees, legal expenses, etc.
3. Calculation of taxable capital gain in the case of transfer – sale of shares of a Cyprus company owning immovable property (real estate)
The following are taken into consideration in the case of transfer – sale – placement of shares in a Cypriot company that owns real estate:
[a] The Real Estate of the Cyprus company stands out and its market value as of the date of sale of the shares is determined.
[b] Its market value is on 1/1/1980 or on the date of acquisition of the real estate or on the date of acquisition of the shares by the holder, any date is later. The share price of the Cyprus company is ignored because it may include other values.
The shareholder of a Cyprus company that may also be involved in the real estate trade is subject to Capital Gains Tax for the capital gain from the sale of the company’s shares. These are two different persons, one (the company) is subject to income tax for the profit made from the sale of real estate and the other (the shareholder) is subject to Capital Gains Tax for the profit from the sale of the company’s shares.
4. Exempt capital gains on Cyprus immovable property (real estate)
The following lifetime exemptions are available to individuals.
- The first €17.086 of taxable gains from the disposal of any Cyprus property
- The first €25.629 of taxable gains from the disposal of agricultural land by a farmer (subject to certain conditions)
- The first €85.430 of taxable gains from the disposal of private residence used by the owner as of the main residence (subject to certain conditions)
The above exemptions are lifetime exemptions subject to an overall lifetime maximum of €85.430
5. Exempt disposals on Cyprus immovable property (real estate)
- Transfers by reason of death.
- Gifts between relatives up to the third degree of kindred (for example husband to wife, brothers, grandfather to grandson, and uncle to nephew).
- the values of the exchanged properties are equal to each other. Exchange of properties, to the extent that the gain made on the exchange, has been used to acquire the new property. The gain that is not taxable is deducted from the cost of the new property, i.e., the payment of tax is deferred until the disposal of the new property.
- Gifts to Cyprus companies where all the shareholders are and continue to be members of the donor’s family for at least five years after the transfer date.
- Gifts to the Government, district authorities, and approved charitable institutions.
- Gifts from family companies to their shareholders where the property was acquired by donation and is kept by the donee for at least three years.
- Transfer as a result of re-organisations (under certain conditions)
- Gain from disposal of land and buildings acquired from 16 July 2015 until 31 December 2016.
- Exchange or disposal of immovable property under the Agricultural Land (Consolidation) Laws
- Donations to a political party
- Exchange of Cyprus property. Where the value at the time of acquisition of the property is equal to or greater than the value of the property with which it is exchanged, tax is paid on the entire gain arising from the disposal. E.g. Disposal of property of 100,000 Euros. Value at the time of acquisition 80,000 Euros. Profit 20,000 Euro. The exchange value of the new property is 60,000 Euros. Taxable profit 20,000 Euros. In the event that the value at the time of acquisition is less than the value of the property with which it is exchanged at the time of the exchange, tax is paid only on the profit that was not used for the acquisition of the other property. E.g. Disposal of property of 100,000 Euros. Value at the time of acquisition 80,000 Euros. Profit 20,000 Euro. The exchange value of the new property is 88,000 Euros. Taxable profit – profit that was not used for the acquisition of the other property 12,000 Euros. In this case, the acquisition cost of the new property that comes into the possession of the testator is reduced by the amount of the profit for which no tax was paid. E.g. Cost of the new property is 88,000 Euro less the amount of profit for which tax was not paid 8,000 Euros, the new cost of the new property is 80,000 Euros.
With the aim to give motives for loan restructuring, tax incentives have been provided, in those cases where such a restructuring includes the transfer of immovable property to the lender against the loan obligation (Subject to conditions). If a part of the sale proceeds, will return to the borrower, then this amount is subject to income tax, capital gains tax, and special defence contribution, which must be withheld and paid to the authorities by the loan provider. The cost of acquisition is the amount that had been agreed upon for the purpose of restructuring.
6. Contribution to the Central Agency of Equal Distribution of Burdens
A seller who transfers real estate located in the areas controlled by the Republic of Cyprus is subject to a levy equal to 0.4% of the proceeds of the sale.
A similar contribution is due in the case of the transfer of shares to any company that owns such real estate, provided that the buyer acquires control of the Company. The contribution, at a rate of 0.4%, is calculated based on the latest valuation of real estate made by the Department of Land Registry and Surveying.
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