The U.S. Department of State’s Bureau of European and Eurasian Affairs states that in recent years projects with Cyprus involving U.S. investment have included a well-known U.S. coffee retailing franchise, a university, an information technology firm, an equestrian center, a hair products manufacturing unit, a firm trading in health and natural foodstuffs, and a financial services company. Altogether, this influx of investment and financial assistance has helped shape Cyprus into an all the more appealing country.

The Cyprus government focused their economic policy on meeting the criteria for admission to the EU. According to the U.S. Department of State’s Bureau of European and Eurasian Affairs, in October 2004 (following their May entry into the EU) the Republic of Cyprus lifted most investment restrictions concerning non-EU residents, completing earlier reforms (introduced in January 2000) concerning EU investors. Through this decision, the Republic of Cyprus has lifted most capital restrictions and limits on foreign equity participation/ownership, thereby granting foreign investors the same rights and benefits as national investors. More over, new countries joining the EU are required to adopt the euro as a national currency, and the Cypriot government is set to adopt the currency on January 1, 2008. Cyprus must also lower interest rates as an additional part of their progress in the EU.  Rates have dropped from 5% to 4.25% already and could go as low as 2.5%.  For the most part, when interest rates drop more people can afford to buy property. Also, some Cypriot lenders are making it even more affordable to purchase a property with 100% mortgages.

For the investor Cyprus has several markets to target. It is becoming less common for people to buy off plan and flipping properties for resale when completed, as rental yields are at an impressive 8% average. Those who buy to let are enjoying steadily increasing rental yields and in some cases investors are buying off plan and buying into guaranteed periods, where levels of rent are being offered by large developers and tour operators who are able to give guarantees because of the appeal of Cyprus. Cyprus has year round appeal allowing for the market of winter months. An Investor could also target the full-time retirement market attracted to the island. Alluring is that Cyprus is relatively tax friendly (pension income is taxed at only 5% and evidently there is no inheritance tax on estate property all over the world for permanent residents of Cyprus - although it is advised for those with addresses in the UK to check their status), it has a fairly low cost of living, exceptional and affordable healthcare facilities, an ideal climate and is almost as popular with retirees as Spain with property prices in Cyprus at least 30% less than most properties in Spain’s more popular places. 

Practical Advice:

There are essential checks to be performed before buying a home in Cyprus. The guide entitled “Buying a Home in Cyprus” advises that while it may seem expensive (small price in comparison with the cost of a home) and legal checks may require one to wait extra time before buying, purchases should not be made without legal advice. When selecting a lawyer it is key to confirm they are a member of the Cyprus Bar Association (23 Loukis Akritas Street, Ayios Dhometios, CY-1508 Nicosia, Tel. 22-779 156, www.cyprusbarassociation.org) Membership is required, and confirmations can be made on the website or by telephoning the association and giving the lawyer’s name. Keep the following in mind when the lawyer is performing checks on the property. Make sure that the vendor is the legal owner of the property and that there are no outstanding debts, which is done through the Lands Office. If purchasing a new property or one that’s under construction, ensure the vendor has obtained the agreed Town Planning and Building Permits. If not, make sure your lawyer makes this a condition of the sale contract. This will guarantee the vendor is legally authorized to complete the construction of the property. Furthermore, it is important to make sure that the sale contract is deposited with the local Lands Office, particularly if the property is part of a new development. A developer may say there are no separate title deeds for the apartment or house. What this means is that the title deeds cannot be transferred to your name until the whole development is finished, which can take some time. The sale contract must be worded in a way that the vendor is legally committed and your property protected until such time as a separate title deed can be issued to you. Also, make sure that if there are any co-owners they all sign the sale contract to avoid any future disputes. Finally, make sure that your sale contract is stamped and registered by the Lands Office.

Tax Highlights:

Southern Cyprus
Real Estate Transfer Tax
To transfer the freehold into the purchaser’s name this is levied on a progressive scale starting at 5% for up to CYP10,000, increasing in five steps up to a maximum of 8% for above CYP75,000.

Immovable Property Tax
For residents, based on the value of the property at a rate of 0.2% between CYP100,000 and CYP250,000; 0.3% for up to CYP500,000 and 0.35% for over CYP500,000. The first CYP100,000 is tax exempt.

Stamp duty
Charged at a rate of 0.15% on the first CYP100,000, and 0.2% above this amount.
Local authority taxes

Depending on the size of the property, this ranges from 0.1% to 0.5% per annum to cover refuse collection, sewerage, street lighting etc.

Capital gains tax
Charged on disposals of real property and shares in companies owning real property in Cyprus. The first CYP10,000 of a gain is tax exempt. This exemption limit rises to CYP50,000 if the seller has lived in the property continuously for the previous five years.
In certain circumstances, further allowances are granted for transfer fees, inflation and improvements made to the house, but the total exemption cannot exceed a CYP50,000 limit.

Northern Cyprus
VAT
15% is charged on most new build properties and is payable at the time of transfer of title.

Purchase Tax
3% is payable upon transfer of title and it is based on the Land Registry Valuation of the property. This valuation is usually considerably less than the selling price as only bricks, mortar and size of land are taken into consideration, not fixtures and fittings.

Local council taxes
Of 1% of the 3% Belediye are also payable.

Capital Gains Tax
There is generally no Capital Gains Tax payable on a property purchase, as the vendor is usually liable to pay this, unless otherwise stipulated in your contract.

If you are selling your property, Capital Gains Tax will be calculated based upon whether you are a private individual or a professional vendor. Every individual in Northern Cyprus has a once in a lifetime tax free sale option (for a house and land not exceeding approximately 1 donum). On all subsequent sales, Capital Gains Tax will be payable at 3.5%, provided you do not sell more than 3 properties in one year, making you a professional vendor. For professional vendors, there are no tax exemption rights and Capital Gains Tax is payable on every sale at a rate of 6.25%.

Capital Gains Tax is not payable if you sell the property before taking on the title in the case of an off-plan purchase.

Stamp duty
You will have to pay stamp duty on the contract at 0.5% of the contract value. This amount is doubled if you pay within 2 to 6 months of signing the Contract and is tripled if you pay after this period.

Credits & Mortgages:
A mortgage with a Cypriot Bank is an option for foreign investors, however may be higher costs involved. The minimum deposit needed depends on your residency. A Cypriot national can often arrange a 90% mortgage, while EU residents will require a minimum of 20% - 30% deposit of the purchase price. Residents of non-EU countries will usually require a minimum deposit of 30%. A fee between 0.75% and 1% is charged by all Cypriot banks. The repayment time is often as little as 10 years, yet occasionally may be longer. As always, before making a commitment to a property investment in Cyprus, we recommend you discuss your strategy with a lawyer, a reputable property agent with experience in the area and even a financial advisor.

Southern Cyprus Mortgages
Life insurance is required when taking out any mortgage in Cyprus. Repayment mortgages can be obtained in any foreign currency (U.S. Dollars, British Pounds, Euros and Swiss Francs, or in Cypriot Pounds). A Cyprus pound mortgage helps to stay away from capital loss from currency exchange if you rent out the property, given that you keep to the local currency. When renting out the property it is important to know what currency they will be paying in and plan your mortgage in view of that. In regards to a loan in foreign currency the limit of the loan is 15 years, while a loan in Cypriot pounds has a limit of 25 years. Loan payments can be made in quarterly or monthly payments. Cypriot interest rates are about 7%, while foreign currency mortgages are about 3.25%.

Northern Cyprus Mortgages
Northern Cyprus has traditionally been a cash buyer’s market. With the development of the property market there are several banks, property developers and estate agents are currently assisting with finance for property purchase. Property developers in Northern Cyprus are aware of the fact that the previous lack of bank finance restricted the local property market potential. Today many developers in Northern Cyprus offer a wide variety of financial incentives and payment options to their customers.