Buying Property in Cyprus: the how-to Legal Guide

THE PURPOSE OF THIS GUIDE

The ILISTERS guide on buying a home in Cyprus is now available!

This property guide will offer you an introduction of the Cyprus conveyancing procedure, covering legal rights and obligations for both you and the seller, as well as common mistakes to avoid.

Of course, no guidance can replace professional legal advice. Customer reviews of ilisters English-speaking lawyers in your area of Cyprus can be found throughout this guide.

ilisters is a unique network of English-speaking independent lawyers, accountants, architects, translators, and financial service firms in Cyprus.

You may rest certain that all of the network’s officially registered and regulated professional members adhere to strict legal service rules and standards, which are monitored by a UK-based legal professional who is a member of the Chartered Institute of Legal Executives.

Let’s get started with the guide!

WHAT DO I NEED TO KNOW BEFORE BUYING A CYPRUS SECOND-HAND PROPERTY?

When purchasing a home in Cyprus, there are a number of legal problems to consider.

When dealing with a property transaction, the vendor is required by law to produce the following documentation:

• Information about the property from the Land Registry (title deed or contract of sale)
• Tax certificates from the Department of Revenue, the Municipality or Community Council, and the Sewerage Board.
• On the buyer’s request, a Land Registry Search Certificate is issued for the property.
• Obtaining specific performance registration of the contract of sale with the local Land Registry, which protects the purchaser’s rights to the property until the title deed is transferred into their name. The Purchaser is responsible for requesting that the contract of sale be registered with the land registry, and the Seller is required to comply. Within two months of the date of signature, any contract of sale may be registered with the local land registration.
• Recently, the law of Specific Performance relating to Property Sales of 2017 took effect, amending article 12 of the Laws of 2011 and 2012 on the same subject, granting the Court jurisdiction to allow the filing of a contract or an action for specific performance, even if the prescribed period of time has elapsed, provided that certain conditions are met.

Furthermore, the buyer should double-check the following:

• The current owner of the property’s name and identification

• Clean Title Deed – ensures that the property meets all governmental and municipal requirements, such as obtaining a building permit and receiving final approval.

• If the property has a mortgage or other charge/encumbrance,
• The physical property matches the title deed description.
• All resale properties are sold “as is,” and a buyer cannot sue for breach of contract once the property has been transferred.
• That the land is properly designated for construction.
• The buyer should also check to see if the home has any occupied tenants.

WHAT IF IT’S A NEW PROPERTY?

It’s a good idea to double-check the following before purchasing a new home:

• The existence of a building permit and a final approval from the relevant technical department confirming that the construction project was completed in line with the town hall’s permission.

WHAT ARE THE SELLERS’ LEGAL AND FINANCIAL OBLIGATIONS TOWARDS THE BUYER?

The following are the legal responsibilities of the property’s vendor:

• To keep the property safe until the buyer takes possession.
• The property will be transferred.
• Make repairs to the property’s flaws or inadequacies.
• To cover certain expenses and taxes.

When purchasing an off-the-plan property, if there are any problems in the property that the seller is aware of but has not disclosed to the buyer, the buyer may be able to withdraw the contract or seek damages instead.

Unless there is an agreement to the contrary, the purchaser is responsible for all costs associated with the transfer of the property, including stamp duty after the contract is signed and transfer fees (exemptions exist). The vendor is responsible for any capital gains tax that is due.

WHAT CAN I EXPECT FROM THE LEGAL PROCESS IN CYPRUS WHEN I BUY A PROPERTY?

The legal system of Cyprus is straightforward and, in reality, is based on UK law. Here’s a step-by-step guide to what to expect:

• Step One: If your offer is accepted, you may be requested to sign a reservation agreement, which, while not legally binding, demonstrates your intent to purchase. If you want a mortgage, the vendor should now withdraw the property from the market while your lawyer conducts some basic due diligence and the bank conducts its own valuation.

A small holding deposit is commonly required these days, and this is frequently paid directly to the vendor. You risk losing money if you just “alter your mind,” so have a receipt set up by your lawyer saying that the deposit is “subject to satisfactory checks,” which will protect you. The buyer’s and seller’s lawyers’ information is then exchanged.

• Step 2: Your lawyer will now conduct checks to confirm that the property is clear of any outstanding debts. (It was standard practice in Cyprus in recent decades for developers to take out land mortgages and not repay them – in this situation, you would effectively own the home but not the land it sits on.)

A title search will be performed by the lawyer to ensure that the seller is the legal owner of the property and has the right to sell it. Boundary searches will be conducted, and all planning permissions will be confirmed.

At this time, a volunteer Plan Search at the local council can be good to see whether any other development is proposed in the vicinity. Although you won’t be able to ensure that a property will not be built directly in front of yours in a few years, it will assist to lessen your risk.

• Step three: If you’re happy to proceed with the surveys and your lawyer hasn’t raised any concerns, you’ll go on to the Contract of Sale. This is the same as a contract exchange in the United Kingdom, and all relevant facts must be recorded.

If you are unable to go to Cyprus, you must provide your selected representative power of attorney to sign on your behalf. A non-refundable deposit of between 10% and 30% will be required, so make sure you’re completely satisfied with the specifics before signing.

• Step four: After both parties have signed the Sales Contract, your lawyer will file it with the District Land Registry Office. This precludes the seller from refinancing or selling the property to anybody else until the Title Deeds are obtained. This is called as Specific Performance Law, and it protects you in some ways until the deeds are issued.

Along with your registration, you will need to present bank and character references. You will also need to apply for a permit from the Council of Ministers as a non-Cypriot. Keep in mind that this could take a few months to complete.

• Step five: Funds must now be put in place in order to complete the sale. If you’re paying with a mortgage, your lender will handle the transfer of funds to the seller. If you pay in cash, the transfer will be handled by your currency exchange firm or bank.

• Step Six: Because getting the final Title Deeds in Cyprus can be a lengthy process, this is where the Cyprus system differs from the UK system.

The Title Deeds may be available for instant transfer into your name in some situations. If this is the case, the transfer fee is paid to the Land Registry, and you have “finished” in the sense that we use in the United Kingdom.

In other circumstances, however, it may take months or even years for the Title Deeds to be issued. However, in Cyprus, it is still usual practice to complete the transfer, pay the remaining, and live in the home while you wait. Consult your lawyer to see if this is appropriate in your situation — new legislation have recently been introduced to ensure that Title Deeds are given directly to buyers.

Note that if you are purchasing a new property, you may be required to pay the purchase price in installments rather than all at once. Make sure you get bank guarantees for each payment in case there are any issues with the construction.

WHAT SHOULD I BE WARNED ABOUT IN THE CASE OF POTENTIAL PITFALLS?

The procedure of buying a home in Cyprus should go easily if you choose an independent lawyer. Nonetheless, it’s a good idea to start with these typical blunders:

Purchasing a home on land that is still encumbered by a mortgage or does not have legal title

Despite the fact that the Cypriot government is working hard to prevent this from happening, it is still possible. Your lawyer must conduct thorough due diligence and background investigations on your developer.

Not paying attention to the state of your fixtures

Although the house is supposed to be sold “as is,” astute developers have been known to swap out more expensive furnishings in the “display home” for more basic ones. Before signing the contract of sale, double-check that everything is in functioning order and that nothing has been substituted!

Failure to comply with the terms of the contract of sale

The Contract of Sale must be deposited and stamped by the Land Registry within a certain time range, according to Cypriot legislation. If you do not follow this, you will lose key legal rights.

Failure to appropriately calculate the exchange rate when calculating the total transaction price

The value of a currency fluctuates all the time. While this may be OK when purchasing vacation funds, it might become a major issue if the ultimate price of your property differs dramatically from the time you made your offer. Fixing your rate with a specialized foreign exchange business is an excellent idea.

Restrictions on renting
Non-resident owners who rent their home on a short-term or holiday basis are subject to rigorous regulations in Cyprus. When you apply to the Council of Ministers for approval to acquire, you must state that the property will not be utilized for “commercial reasons.” It’s advisable to seek legal guidance before purchasing property to rent out to the holiday market.

WHERE DO I PAY FEES, TAXES, AND CHARGES WHEN I BUY A PROPERTY?

Whether you’re buying or selling a home in Cyprus, there are a variety of expenses to consider.

You’ll recognize some of these if you’ve gone through the process in another nation, but others you won’t.

The primary charges will be mentioned in this guide, and the party who is normally accountable is the customer (unless otherwise indicated).

However, it is important to remember that the principle of contract freedom is a cornerstone of Cypriot law, and the parties are free to take whatever duties they want in terms of paying the fees and taxes paid while transferring property in Cyprus.

GET A TICK

You’ll need a TIC number, or Tax Identification Code, before you can do nearly anything in Cyprus (and especially before you can buy a house). This can be done at the local tax office in the area where you plan to live.

A TIC can also be arranged by your legal representative when a power of attorney or similar document has been completed. This is a service provided by Ilisters.

CYPRUS PROPERTY TAXES

Cyprus is known for its sun, sand, and fine wine, but when it comes to taxes, it is unquestionably the best in the world! We’ve outlined the most common property taxes in Cyprus that you’ll encounter when purchasing a home. In general, the main property taxes or charges in Cyprus can be divided into the following categories:

• VAT on newly purchased property / If you must pay VAT, you are excused from paying transfer fees.
• When you sell a home, you’ll have to pay capital gains tax.
• Property tax levied by the local government (yearly)
• Water usage (monthly) and waste collection by the local authority (yearly)
• In some regions, there is a cemetery levy imposed by the local government (yearly)
• Sewage levy levied by the local government (once a year)

Duty on Stamps

Following the signing of the contract of sale, the purchaser is responsible for paying stamp duty as follows:

As of March 1, 2013, contracts with a fixed sum are no longer available.

The first €5000……………………….0

1.5 percent between €5001 and €170,000

If you earn more than €170,000, you’ll get a 2% bonus.

Contracts with no fixed amount……€35

As of March 2013, the maximum amount is €20,000.

Nota bene: Payment is needed within 30 days after signing the sales contract.

Property can be transferred through the District Land Registry Office.

The transfer of ownership is accomplished through a straightforward registration process with the District Land Registry Office. Complete the prescribed application form N270 and submit it to the District Land Office in person, along with:

• The property’s registration certificate (title deed).
• A copy of the authorisation granted by the Council of Ministers to acquire the property in question.
• The Central Bank of Cyprus has written confirmation that the transaction was made with foreign cash.
• Evidence of current property tax payment (which may include various municipal/local authority taxes and sewage tax).
• The contract of sale has been properly stamped.

Any third party may be given special powers of attorney by the purchaser and seller to attend and perform the transfer on their behalf. The District Land Registry Office will levy transfer fees when the property is transferred and registered in the purchaser’s name. These fees are computed depending on the market value of the property at the time of purchase and are calculated as follows:

Rate percent Fee € Accumulated fee € Current Market Value €

3 2.550 2.550 for the first 85,000

5 4.250 6.800 85,001 – 170.000

Over 170,000 people 8

In the event of free property transfers, the transfer fees are determined as follows based on the property’s valuation as of January 1, 2013:

• from parents to their children: Nil
• 0.1 percent between spouses
• 0.1% between third-degree relatives
• €50 to the trustees
• Fees for registering a mortgage are 1% of the current market value.

Transfers of immovable property are not subject to transfer or mortgage registration costs in the case of company reorganizations.

VAT

Since Cyprus joined the EU in 2004, a standard VAT rate of 19% has been imposed when purchasing a new property. However, as a result of a recent VAT Amendment Law, a reduced VAT rate of 5% is now applied to the purchase of new residential buildings.

Certain terms and conditions must be met in order for the discounted rate to apply:

• The property must be utilized as the applicant’s primary and permanent residence (for the next ten years).
• The applicant has not taken up any other abode in Cyprus that qualifies for a reduced VAT rate.
• Legal entities are not eligible since the candidate must be a human over the age of 18.
• According to the architectural plans submitted to the authorities, the lower VAT rate of 5% is applied to the first 200 square meters (building coefficient) of the property. The regular rate of 19 percent is applied to the remaining square meters.

VAT & PROPERTY TYPES

What types of properties are subject to VAT, and at what rate? The following are the VAT legislation that apply to the purchase of property in Cyprus:

• Land sales are exempt from VAT. Although it was expected that VAT would be implemented on sales on August 1, 2008, the Cyprus government secured a postponement, and it will instead be implemented on January 1, 2009.
• On the construction costs, buyers of bespoke homes pay VAT at the current rate (this has always been the case).
• If the application for a Town Planning Permit was submitted after May 1, 2004, those purchasing a home from a property developer are subject to VAT.
• VAT is not charged on resale property in Cyprus (assuming that the property has been used).

TAXES IMPOSED BY LOCAL AUTHORITIES

This fee is comparable to Council Tax or rates in the United Kingdom. It is usually paid once a year (though it is sometimes invoiced quarterly) at the town hall or Community Council, and the exact day that the charge is due varies each town hall/community council, but it is usually near the end of the calendar year.

When purchasing a home, keep in mind that the buyer should only pay for the months in which the property is occupied. If the former owner paid for the entire year, they are entitled to a refund of the amount that they will not use.

Property tax, water usage, and garbage collection are all included in the council tax, as well as a yearly cemetery tax in some regions.

It should be noted that, as of 2019, the Governmental Property Tax has been repealed, and property owners now just pay council property tax.

TAX ON INVESTMENT PROFITS

Gains from the disposal of immovable property located in Cyprus, including gains from the disposal of shares in companies that own such immovable property directly, are subject to a 20% capital gains tax (when the disposal is not subject to income tax), excluding shares listed on any recognized stock exchange.

Capital Gains Tax is not applied to the following immovable property sales:

• When land or land with buildings is purchased between July 16, 2015, and December 31, 2016, it is exempt from CGT (subject to certain restrictions).
• Transfers that occur as a result of a death.
• Gifts exchanged between parents and children, husband and wife, or third-degree relatives.
• Gifts to a corporation whose shareholders are members of the donor’s family and who remain members of the family for the next five years after the transfer.

Individuals can deduct the following from their capital gain:

Disposal of a primary residence owned by a private individual (subject to certain conditions) €85,430

A farmer’s disposal of agricultural land costs €25,629

€17,086 for any other disposal

Note that the foregoing exemptions are lifetime exemptions with a lifetime limit of €85,430.

FEES FOR PROPERTY MANAGEMENT

In comparison to the UK or Ireland, Cyprus, like other mainland European countries, has a far higher number of apartment-style dwellings. There is a cost involved with the upkeep of shared amenities when numerous proprietors share common sections of a property such as the building’s lifts, porter facilities, the building edifice, the car park, or the swimming pool.

As a result, each owner is compelled to contribute monetarily to the upkeep through a community charge, often known as “communal fees” in Cyprus.

The amount payable varies from one building to the next or from one urbanization to the next, but it is also influenced by the square meters of property owned within the building (some properties are larger than others and therefore should pay a larger share).

The purchaser of a second-hand apartment within a building or community may take the debts and pending community charge for the previous and current years, which is crucial to consider for property buyers.

As a result, before purchasing a home, the buyer should request that the seller provide them with a certificate of proof of payment of the communal fees.

ADDITIONAL FEES

Other ancillary charges, such as garbage collection and water rates, may be required in addition to the primary taxes and levies described above.

If a community charge is paid, the charge for common area energy and water bills will almost certainly be included, but if the property is a distinct building, such as a villa in its own grounds, such charges will be paid separately.

ASSESSMENT OF THE PROPERTY’S VALUE

This is normally a requirement of the financial institution that may grant the mortgage, and it is usually carried out by the Bank’s surveyors and is seen as a mortgage charge.

If the Buyer so desires, he or she may do a private valuation at his or her own expense.

The individual performing the valuation must be certified by the Cyprus Scientific and Technical Chamber (K), which serves as the State’s official Technical Advisor and serves as the umbrella organization for all Cypriot Engineers. It was founded by Law 224/1990.

VERIFICATION OF THE LAND REGISTRY

It is necessary to check with the land registry at the local town hall where the property is located to ensure that the property’s particulars are correct, such as the identity of the current owner(s), the mortgage charges and any other encumbrances that currently exist on the property, and the existence of any court judgments affecting the property, etc.

THE OFFICIAL NOTARY

While it is technically correct to arrange for the transfer of a property in Cyprus through a private legal contract, this is not the most common or preferred method.

This is because, in order for a new property title to be published in the public Land Register, the property must be transferred by public deed. Failure to register the title would allow an unscrupulous vendor to sell the property to a third party, who, upon registration of their title, would be entitled to keep the property, leaving you – the unfortunate earlier purchaser – to chase repayment from a (likely) long-gone seller.

In addition, failing to register a purchaser’s new title on the Land Register and thereby removing a former title could result in embargos being placed on the property due to obligations owed to the previous owner.

In practice, no financial institution will provide a mortgage to help with the purchase if the property does not have a public deed.

The procedure entails a public notary drafting up the deeds of transfer. This is an independent person who supervises the procedures and verifies that they are conducted in accordance with the law and that the documentation is accurate.

The sum charged by the notary is set by law and fluctuates depending on the property’s value.

NEW TITLE INSCRIPTION IN THE LAND REGISTRY

It’s a good idea to register the new ownership data with the public property register once the property has been transferred.

Apart from the fact that you won’t be able to get a mortgage if you don’t register, failure to do so might lead to a slew of issues in the future, such as future property transfers, inheritances, and defending title against third parties.

THE PREVIOUS MORTGAGE IS REMOVED FROM THE REGISTRY

While it is not a legal requirement, having the prior mortgage removed from the property register is desired, and the cost is usually borne by the seller, who sells “free of encumbrance or charge.”

Even if the mortgage has been paid off after the home has been sold, it is best practice. The charge will remain in the register, and removing it will result in a variety of fees, including notary and registrar fees.

Obtaining a certificate from the financial institution that issued the mortgage stating that the mortgage has been discharged is part of the process.

After that, the certificate is handed to the notary, who prepares a public deed to that effect. The deed is subsequently delivered to the registry for inscription on the property register, which releases the property from the mortgage charge.