Buying investment property in Cyprus – How to handle CGT
The capital gains tax rate in Cyprus is 20% of the inflation-adjusted taxable gain, but certain lifetime exemptions apply to individuals for the disposition of their main residence. The first CYP10,000 of a gain is exempt. This exemption limit amounts to CYP50,000 if the seller has lived in the property continuously for the previous five years. Additional allowances are granted in relation to transfer fees, inflation and improvements made to the house, services of registered real estate agents, but the total exemption cannot exceed a limit of CYP50,000. Capital gains tax does not apply to gains from the sale of foreign real estate by residents who were non-residents when they purchased the asset.
Please note that these are personal allowances. Therefore, if the property is jointly owned, for example, by husband and wife, each owner is entitled to the CYP 10,000 or CYP 50,000 exemption.
Do not forget that in addition to the CGT personal allowances, you can also claim an Inflation Allowance. The indexation factor is based on the cost of the property if purchased after 01/01/80, using the Consumer Price Index (CPI) for the month prior to the sale and the CPI for the month of acquisition. Disposals of plots use the 1980 valuation for the purposes of the CPI.
The data is below.
The following can also be deduced:
Ground transfer fees
Realtor Commission – (but only if you are a licensed agent)
Capital additions or improvements – (receipts and planning permission required when necessary)
Indexing can be applied to previous expenses as well as the initial purchase price.
Additional expenses allowed:-
Interest on the Loan used for the Acquisition of the Property
These expenses cannot be indexed.
If you are selling a partially or fully furnished property, there is a perfectly legal way to reduce your CGT liability.
Have two contracts; one for the sale of the property and the other for the furniture, etc. (this is known as a furniture contract).
For the purposes of the CGT, the IR will only be interested in the profit obtained from the sale of the property.
Avoid CGT in Cyprus
In Cyprus, profits derived from the sale of securities for individuals resident in Cyprus are not taxed. “Securities” is defined as shares and other securities of companies or other legal persons, incorporated under the law in Cyprus or abroad and options thereon.
So, to legitimately avoid all Cyprus CGT, then you could buy your property in Cyprus using a Cyprus registered Limited Company.
But you will still have to pay UK CGT, but the good news is that it can make up for what you paid in Cyprus. Finally, the article tells you how to avoid paying Cyprus CGT entirely.