CYPRUS – CAPITAL GAINS TAX

CYPRUS  CAPITAL GAINS TAX

Dear Cyprus Property Seller,

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all the complexities of Capital Gains Tax.

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NOTE: Zero Capital Gains Tax on sale of property, purchased between 16th July 2015 & 31st December 2016.

If you buy property between 16th July 2015 & 31st December 2016  and later you decide to sell this property you  will not be charged capital Gains Tax , provided you are not a property trader/land dealer.

 

Capital gains tax is  imposed  at a fixed rate of 20% on both individuals and companies on gains arising from the disposal  (sale)  of immovable property situated in Cyprus AND sale of shares in a company not listed on a recognized Stock Exchange, which owns immovable property in Cyprus . Therefore the important factor is the location of the property and not the residency of the owner.

The capital gain is calculated after deducting from the sales proceeds the original cost and any additional expenditure, adjusted for inflation, and any allowable expenses directly related to the disposal of the building such as interest on loan and advertising.

It should be noted that if the property is purchased prior to 1980, the cost used in the calculation is the market value of the asset as at 1.1.1980.

Residents of Cyprus

Residents of Cyprus are liable to Capital Gains Tax on all disposals irrespective of where the property is situated.

 

Cypriots Residing Abroad & Expatriates Residing in Cyprus

However, disposal of property held abroad by a Cypriot who acquired the property whilst residing abroad and also an expatriate residing in Cyprus who has property abroad, is exempt from Capital Gains Tax.

 

Non-residents of Cyprus

Non-residents are liable to Capital Gains Tax only on disposals of property situated in Cyprus.

However, there is an exemption from Capital Gains Tax for Cyprus Property which was acquired between 1 August 1980 and 13 July 1990 with foreign exchange imported in Cyprus.

 

Exemptions from Capital Gains Tax

 

The following disposals of immovable property are not subject to Capital Gains Tax:

 

  1. Transfer arising on death

 

  1. Gift made from parent to child or between husband and wife or between up to third degree relatives

 

  1. Gift to a company where the company’s shareholders are members of the donor’s family and the shareholders continue to be members of that family for five years after the day of the transfer.

 

  1. Gift by a family company to its shareholders. The property must be kept by the donee for at least three years.

 

  1. Gift to charities and the Government.
  2. Exchange or disposal of immovable property under the Agricultural Land (Consolidation) Laws.

 

  1. Any other disposal.

 

(The above exemptions are given once and not for every disposal.  An individual claiming a combination of the above is only allowed a maximum exemption of €85.430

 

 

  1. Exchange of properties, provided that the whole of the gain made on the exchange has been used to acquire the other property (rollover relief). The gain that is not taxable is deducted from the cost of the new property.

 

 Determination of Capital Gain

 

In determining the capital gain, the cost of acquisition or the market value as at 1 January 1980, whichever is the highest, plus an indexation allowance (which is based on the official Retail Price Index) is deducted from the sale proceeds.

 

        Simple  Example            
Sale price at 31 December 1993     90.000
 Cost of acquisition at 1 January 1983    (60.000)
Indexation allowance 1 January
1983 to 31 December 1993
€30.000 @ 60,02 per cent    (18,006)
Net Capital Gains     11.994
 Capital Gains Payable at 20%      2,399

 

 

Life Time Exemptions for Individuals

 

Individuals can deduct from the capital gain Life Time Exemptions .

These exemptions apply only for individual (not for legal person) and are used for reducing / eliminating the taxable gain. The life time exemption is given once in the life time of an individual and the max amount provided, subject to conditions, is €85.430.

 

The life time exemptions are as follows:

  • Gains from any kind of disposal: €17.086
  • Agricultural land (if main occupation is agriculture i.e. farmer): €25.629
  • Disposal of principal private resident €85.430. To be eligible for this exemption:

 

  1. The house should be used by the owner exclusively for his own habitation for at least 5 years (10 years if second time)
  2. The period of use does not necessarily have to be continuous. It may be interrupted as it may happen for example during an absence overseas
  3. Use of the resident means use by the owner
  4. Situated in land not exceeding 1.500 sq.mts
  5. Where the residence is situated on land exceeding 1.500 sq.mts, tax is payable on the proportion of the gain accruing from the disposal of the land in excess of the 1.500 sq. mts
  6. No exemption is allowed where disposed in more than 1 year after it has ceased to be used by the owner

 

Other Exemptions

  • Gift between relatives up to third degree of kindred
  • Transfer by reason of death
  • Gifts made for educational or charitable purposes to a local authority or to any approved charitable institutions in the Republic
  • Gift to a company where the company’s shareholders are members of the donor’s family and the shareholders continue to be members of that family for five years after the day of the transfer.
  • Gift by a family company, where all of its shareholders are members of the same family, to its shareholders provided the property was originally acquired by way of a gift. The property must be kept by the donee for at least three years.

Trading transaction  OR   Capital Gains Transaction ?

These are criteria used to determine whether an isolated transaction should be treated as a trading transaction and therefore taxed under income tax or as a capital transaction.

The 10 factors that should be considered in deciding whether a transaction is a trading one are:

  • The subject matter of the transaction
  • The Length of ownership
  • The Frequency of similar transactions
  • The Supplementary work
  • The Circumstances responsible for sale
  • The Motive
  • The Method of financing the cost
  • The Knowledge of the owner
  • The Method of acquisition
  • What happens with the sale proceeds

NOTE:

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Specialist for Limassol Properties,

Lemesos , Cyprus

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