An Introduction to Cyprus

Located in the crystal clear deep blue waters of the Eastern Mediterranean the island of Cyprus is conveniently situated at the hub of three continents (Europe, Asia and Africa), this strategic location has had an important role in the development of the island’s history and civilization. With a land area of 9,251 km the island is the third largest in the Mediterranean after Sicily and Corsica, it’s landscape is rich and diverse and is dominated by two mountain ranges, those of Pentadactylos in the north and the central and larger more well known Troodos range, where winter skiing is possible.

The population of the island is approximately 650,000 with the majority residing in the four main cities / towns, Nicosia (the capital), Larnaca, Limassol and Pafos. As a former British colony and a member of the Commonwealth there are many features to everyday living which have a distinctly English feel to them, not least the fact that English is widely spoken throughout the island with 80% of all locals being relatively fluent, with all administrative (i.e. utility bills) and legal dealings (contracts of sale) being conducted in English, indeed the local legal system is modelled upon the British system.

Joining the EU on May 1st 2004, residents of Cyprus enjoy a crime free environment, state of the art telecommunication and international business services, and excellent healthcare and medical services. There is little poverty, indeed the GDP is significantly higher than all other EU candidate countries, and is indeed higher than some existing EU countries.

Excellent infrastructure and facilities, high standard and quality of life, low cost of living, and generous tax incentives are all major factors that attract people to the island from all over the world, whether it be simply for holidays and vacation or investment and permanent residence.

However for many the one overriding factor that makes Cyprus the ideal location to purchase property is simply the weather and climate. The climate is often regarded by many as the best in Europe, with an almost unbelievable average of 340 days of sunshine per year.

The peak tourism season is from April to October, with June, July and August averaging in excess of 12 hours of sunshine per day and temperatures consistently exceeding 32c. The winter months are mainly classified as December, January and February mainly because the weather is a little inconsistent and there are a few showery days, however it has still been known for swimmers to venture into the sea on Christmas day and sun seekers to get a healthy tan in January.

Pafos 

Pafos is generally regarded by many as the most attractive and ideal location on Cyprus in which to live, it enjoys the best climate on the island with slightly cooler summers and milder shorter winters. Surrounded by a number of smaller outlying villages there is plenty of choice of where in the Pafos area to purchase property, chose the location that suits you best – walking distance to the beaches and shops or inland on elevated hilltops with panoramic views.

A traditional busy fishing port with a picturesque harbour area guarded by an ancient fortress, Pafos has a host of natural and historical attractions which when combined with the necessary modern-day living amenities and facilities make it the ideal location.

Soak in the history of the Mosaics and Tombs of the Kings; bask in the sunshine at Aphrodite’s Birth Place (Petra Tou Romiou); visit the tranquil Ayios Neophytos Monastery; and enjoy the solitude of the Akamas National Park, but most of all feel welcome and at ease with the warm and friendly hospitality extended by the local Pafians. Steeped in history and natural beauty, Pafos was named a UNESCO World Heritage Town in 1980.

The rest of the island is easily accessible by the nearby motorway connection, Pafos International Airport is just 15 mins drive from the harbour area with the number of flights and different carriers increasing all the time, whilst Larnaca International Airport is 90 mins drive away. The wide range of shops, supermarkets, traditional tavernas and multi-cultural restaurants along with other facilities such as exceptional medical care services and international schooling, provide ease and convenience of living.

Pafos also enjoys a strong ex-patriot community, with many clubs and organisations available to meet new friends and provide helpful support if relocating to a new residence.

Investing in Cyprus
Undoubtedly the time is right for investment in property in Cyprus, prices continue to rise steadily and the future for the property market looks bright, with the accession to the EU and the imminent resolution to the “Cyprus Problem” with the north side giving cause for a buoyant future.

For people moving to Cyprus for either partial or permanent residence there are many financial incentives that make the purchase of property and obtaining residency even more attractive than just for the location and the glorious weather. Some of the incentives are outlined below:

The cost of living is substantially lower than most European countries, it is often stated that an average retired couple with no mortgage, running one car and enjoying an active social life can comfortably live on between CYŁ10,000 – 12,000 per year.

Pensions from abroad are subject to a flat tax rate of 5%, with an initial annual allowance of CYŁ2,000 being tax exempt. There are many qualified specialist accountants who can assist you in transferring your pensions across to Cyprus and also providing asset and wealth protection advice.

Investment income remitted from abroad is also subject only to a flat rate of 5%, again with an initial annual allowance of CYŁ2,000 being tax exempt.

Interest earned on foreign capital remitted into Cyprus is tax exempt.

Double taxation treaties concluded with numerous countries eliminate double taxation of foreigners residing in Cyprus. Where relief is not given under a double taxation treaty, relief from Cyprus tax is given unilaterally.

Cyprus has long been an attractive location for offshore international companies to operate from with numerous tax advantages, not least 4.25% corporation tax. Whilst no longer considered an offshore haven, Cyprus is now classified as a tax efficient location due to changes in taxation laws, in line with the forthcoming EU accession.

Cyprus is still however considered an extremely tax efficient location to run either local (onshore) or international (offshore) business from, with both types of companies now being taxed at 10% corporation tax and employees enjoying the first CYŁ9,000 tax exempt prior to a progressive sliding income tax scale. There is a spirit of entrepreneurialism on the island of Cyprus with many people operating as sole-traders and many starting their own businesses.

Purchasing property in Cyprus

The legal system in Cyprus is modelled on the UK system, and by comparison to other countries such as France and Spain the property purchasing process is relatively straight-forward. The other main benefit is that all transactions are conducted in the English language, and your Contract of Sale document will be in English, so you will be able to read it at your leisure and have a valuable input about any specific details, such as terms of payment etc.

Below you will find some useful legal information and details that should help you to understand the property purchasing process in Cyprus.

i)  Solicitor
Chose your solicitor carefully, try to get a good independent recommendation from other purchasers. Olive Properties are more than happy to provide a recommended list of experienced and respected conveyancing solicitors in Pafos, however we fully appreciate that you need to feel comfortable and confident throughout the whole property purchasing process, and therefore may want to chose your own independent Solicitor. Olive Properties does not have a standard contract of sale which we insist must be utilised, we rely upon your chosen solicitor to produce a document that suits both parties needs and that can be swiftly and successfully concluded.

ii)  What can I buy?
Currently foreigners (non-Cypriots) are restricted to the amount of land and property that they can purchase. Non-Cypriots are permitted to buy for their personal use, either:

1. An existing (resale) apartment or house on a plot of land not exceeding 3 donums in size (4,012.5 sq. metres / approximately 1 acre), or;

2. A building plot of land not exceeding 3 donums in size (4,012.5 sq. metres / approximately 1 acre), or;

3. A planned new build house on a plot not exceeding 3 donums in size (4,012.5 sq. metres / approximately 1 acre).

A couple (husband and wife) can only purchase one property, there is not a double allowance.

A new bill has been passed that when Cyprus joins the EU, as an immediate step EU citizens will be able to purchase two housing units. After a transition period of five years (May 2009) there will be no restrictions on acquisitions of property by EU citizens.

iii) Permission To Buy
Until Cyprus formally enters the EU then all current EU citizens need to seek formal permission to purchase property from the Council of Ministers. The procedure is a simple administration formality that your Solicitor will arrange for you, the main purpose is to safeguard Cyprus from allowing foreigners to enter the country to reside who cannot financially support themselves, proof of investments and or a nominal annual income / pension is required. The application is processed after the Contract of Sale is signed and usually takes some months to complete, however you are free to take possession of your property without restriction. The accession to the EU will undoubtedly lead to alterations in this restriction, although it is not yet known what exactly will happen and if there will be a transition period.

iv) Ownership & Title Deed
For the purchasers protection the Land Registry in Cyprus provides a simple and effective legal instrument called “specific performance”. As soon as the Contract of Sale is signed and a deposit paid, then the Contract of Sale is registered and stamped at the District Land Registry Office, your Solicitor will do this for you.

This procedure then protects the purchaser’s ownership rights until the Title Deeds are finally issued and transferred into the purchaser’s name. The Contract of Sale is in the hands of the Land Registry and cannot be withdrawn by anyone, and therefore the property is legally registered in law as unequivocally belonging to the purchaser, it cannot be leased, sold, transferred or mortgaged without the consent of the purchaser – only the purchaser can alter the property status. Indeed “specific performance” is particularly useful as many purchasers are more than happy to have the security it brings and delay the issuance of Title Deeds for as long as possible to avoid paying any Transfer Fees!

The transfer of the Title Deed for the property from Olive Properties to the purchaser can be affected once the following has been completed:

1. Council of Ministers permission for the Purchaser to own the property has been obtained;

2. The Central Bank of Cyprus confirms that receipt of foreign funds has been made;

3. The District Land Registry Office has processed any necessary plot divisions on a development and is ready to issue to the appropriate Title Deed.

The key item is item 3 and the administration time taken by the District Land Registry Office. Olive Properties endeavour to have the appropriate Title Deeds issued within 2 years of the final completion of any project.

v) Residency
Currently,  foreigners including EU citizens who plan to spend more than 90 days in Cyprus per year have to obtain a residency permit or work and residency permit depending on their intentions. The application process normally takes some time but is relatively straight forward and your Solicitor will arrange all matters for you. It is perfectly acceptable to take possession of your property and or complete a Contract of Sale for a property to be built unrestricted and without the necessary residency permits in place. The legislation and administration process regarding residency permits is currently under review in accordance with the planned EU accession, it is envisaged that for current EU citizens such permits will not be required.

Purchasing & Ownership costs

Below we have outlined information regarding the main costs associated with the purchase and ownership of a property in Cyprus, they are listed in the order that you are likely to encounter them.

i) Financing & Mortgages
All commercial banks in Cyprus are authorised to offer mortgage facilities to assist foreigners (non-Cypriots) in the purchase of property. The amount that the banks are prepared to loan is discretionary, but typically 60% - 80% of the value of the property can be obtained, with a repayment period up to 15 years depending on specific circumstances (i.e. age and long term income). With the accession to the EU imminent many of the commercial banks are looking more favourably upon mortgages and are starting to offer special deals and generally making the process somewhat easier than in the past.

Olive Properties can help to point you in the right direction and arrange for you to meet appropriate financial advisors and banking personnel who can advise you. The Accountants, Auditors and Tax Advisors for Olive Properties are PricewaterhouseCoopers of Pafos, should you require their advice or assistance, we would be happy to introduce them to you.

ii) Legal Fees
The cost of a reputable solicitor experienced in property conveyancing in Pafos is approximately CYŁ500 – CYŁ800 per contract of sale transaction, depending what is specifically involved. Don’t be afraid to ask for a quote up front.

iii) Stamp Duty
This is due at the same time as the Contract of Sale is signed, the duty must be paid and the contract stamped within 30 days of signature otherwise a fine will be imposed. Your solicitor will arrange payment and typically include the Stamp Duty within their final invoice to you. It is applied to the full Contract of Sale purchase price, levied on a simple sliding scale as below:

The first CYŁ100,000 charged @ 0.15% (CYŁ1.50 per CYŁ1,000)

Over CYŁ100,000 charged @ 0.2% (CYŁ2.00 per CYŁ1,000)

Therefore on a property purchased for CYŁ150,000 the Stamp Duty would be calculated as follows:

CYŁ100,000 @ 0.15% = CYŁ150

CYŁ50,000 @ 0.2% = CYŁ100

Total Stamp Duty = CYŁ250

iv) Immoveable Property Tax
Immoveable Property Tax is somewhat of a quirky legacy from the past, as the tax itself is based upon the value (like the old UK rateable value) of the property as at 1980, which obviously is considerably lower than current market values. Given that the first CYŁ100,000 (at 1980 valuations) is tax exempt then invariably most properties are exempt from Immoveable Property Tax or face an inconsequential amount. It is charged annually on a sliding scale as below:

The first CYŁ100,000 is exempt

Between CYŁ100,001 and CYŁ250,000 is charged @ 0.25% (CYŁ2.50 per CYŁ1,000)

Between CYŁ250,001 and CYŁ500,000 is charged @ 0.3% (CYŁ3 per CYŁ1,000)

Over CYŁ500,000 is charged @ 0.4% (CYŁ4 per CYŁ1,000)

v) Insurance
Olive Properties will provide comprehensive property insurance against fire and associated hazards until the Title Deeds are transferred to the owners, the cost is approximately CYŁ50 – 150 per year. Household insurance is the responsibility of the purchasers and can be obtained for approximately ŁCY2 per CYŁ1,000 sum insured per year. Medical and Health insurance is also available at extremely competitive prices. There are specialist insurance companies who deal only with expatriate clients, whom we will happily recommend.

vi) Utilities & Municipality Levies
Charges for utilities are payable to the respective authorities at regular intervals throughout the year and are based strictly upon unit consumption, an approximate estimate for both water and electricity would be CYŁ200 per year for an average 3 bedroom villa occupied on a residential basis. In addition the local municipality will also levy a tax for garbage collection and street lighting etc., this varies depending on the municipality but an approximate cost would be CYŁ30 – 100 per year.

vii) Relevant Common Expenses
Some Projects will have communal facilities, such as swimming pools, private roadways, gardens and parking. In order that these facilities are maintained to a high standard a communal maintenance charge will be levied. This is usually paid quarterly in advance and amounts to no more than CYŁ300 p.a. depending on the Project and size of the property.

viii) Transfer Fees
Upon transfer of the property and registration in the purchasers name, the District Land Registry Office will charge Transfer Fees, which are calculated on a progressive sliding scale, on the market value of the property at the time of purchase, and are calculated as follows:

The first CYŁ50,000 charged @ 3%

Between CYŁ50,001 and CYŁ100,000 charged @ 5%

Over CYŁ100,001 charged @ 8%

Therefore an example purchase of CYŁ150,000, would be calculated as below:

CYŁ50,000 @ 3% = CYŁ1,500

CYŁ50,000 @ 5% = CYŁ2,500

CYŁ50,000 @ 8% = CYŁ4,000

Total Transfer Fee = CYŁ7,500

However the good news is that if a property is bought in joint names, i.e. husband and wife, then each partner receives an equal allowance, which reduces the burden, see the below calculation using the same example of ŁCY150,000:

Partner 1 CYŁ50,000 @ 3% = CYŁ1,500

Partner 2 CYŁ50,000 @ 3% = CYŁ1,500

Partner 1 CYŁ25,000 @ 5% = CYŁ1,250

Partner 2 CYŁ25,000 @ 5% = CYŁ1,250

Total Transfer Fee = CYŁ5,500

Also remember that the Transfer Fee is often deferred for sometime depending on how quickly the District Land Office can process the administration involved, a typical time period is 2 years from project completion.

ix) Capital Gains Tax
Upon the sale of your property you could be liable for CGT. A capital gain of CYŁ10,000 per person (therefore CYŁ20,000 for a married couple) above the property purchase price is tax free, thereafter CGT is chargeable at 20%. There is also an indexation allowance taking into account inflation. On top of this allowance the seller is also entitled to a further allowance regarding the transfer fees paid and the costs of any additions or improvements made to the property. Any gains made from the sale of a property that can be proved to have been your primary dwelling house are exempt up to CYŁ50,000 in total if the seller has resided in the property continuously for at least five years.

x) Inheritance Tax
Estate Duty was abolished in 2000.