Resident individual
Capital gains
The factors behind the sale of a real estate need to be analysed. If the individual is considered to be a trader, then income tax applies at the progressive tax system (up to 35%). If the individual is considered not to be a trader, then capital gains tax at 20% applies.
VAT / transfer tax
As a rule, the supply of immovable property on resale terms is exempt from VAT. However, the supply of new immovable property is subject to VAT at the standard rate of 19%. “New” immovable properties are those which are supplied for first use. Leases of immovable property attract VAT at the standard rate of 19% when the lessee is a taxable person and is engaged in taxable activities by at least 90%. The lessor has the right to opt not to impose VAT on the specific property. The option is irrevocable.
Sale of non-developed building land
As from 2 January 2018 non-developed building land sale attracts VAT at the standard rate of 19%. The definition of non-developed land is or includes land intended for the construction of one or more structures that should be used in carrying out a business activity. VAT does not apply on purchases or sales of land which is located in livestock zones or areas which are not intended for development.
Leases of immovable property which effectively transfer the risks and rewards of ownership of immovable property
As from 1 January 2019 leases of immovable property which effectively transfer the risks and rewards of ownership of immovable property are supplies of goods. They also become subject to VAT at the standard rate.
Transfer fees do not apply on transactions of real estate on which VAT has been imposed. A discount of 50% is provided on acquisitions of properties that are not subject to VAT. In the case of companies’ reorganisations, transfers of immovable property are not subject to transfer fees. The Purchaser is solely responsible for the payment of the Transfer Fees. The rates are on a graduated scale.
Losses
Losses incurred on the sale of a real estate from an individual who does not carry out business on trading with real estates, are not taken under consideration for tax purposes. However, losses made by an individual who carries out business as a sole trader, are included in the personal tax return of the individual and set off against any other taxable incomes. Any losses that have not been set off can be carried forward for 5 years.
Non-resident individual
Non-resident individuals are treated in the same way as resident individuals.
Resident company
Capital gains
As well as with individuals, the factors behind the sale of a real estate need to be analysed. If the company is trading in real estate as business activity, then corporation tax applies at the rate of 12.5%. Otherwise, capital gains tax at 20% applies.
VAT/transfer taxes
The same rules as for resident individuals apply.
Deferral of tax / reinvestment reserve
Not applicable.
Losses
Losses incurred once the company undertakes business activities can be carried forward for the next 5 years. In case when the company is not considered as undertaking trading activities on real estate, any capital losses can be set off against future capital gains with no year restriction.
Non-resident company
Companies which are not tax residents in Cyprus, are subject to taxation in the Republic for any Cyprus sourced business income or from any income generated through a Permanent Establishment (PE) maintained in Cyprus. Any profits of the PE may include profits generated in Cyprus and/or any foreign profits relating to that PE.
A PE of a non-resident company is treated as a separate entity and is allowed all the tax allowances and deductions applicable to Cyprus registered entities.
The definition for PEs in Cyprus Income Tax Law follows the definition provided by the OECD Model Tax Convention, Article 5, Permanent Establishment. Cyprus Income Tax Law defines a Permanent Establishment as:
- A fixed place of business through which the business of an enterprise is wholly or partly carried on.
- The term especially includes:
- A place of management;
- a branch;
- an office;
- a factory;
- a workshop; or
- a mine, an oil and gas well, a quarry or any other place of extraction of natural resources.
A PE is not a fixed place where preparatory or auxiliary services are carried out.
A non-resident company or a PE of a non-resident company which is trading in real estate as its business activity in Cyprus, will be subject to normal corporation tax of 12.5% for any taxable profits generated in the Republic. Otherwise, any capital gains generated by selling real estate under non trading conditions are subject to Capital Gains Tax of 20%.
INDIRECT SALE
Resident individuals
Capital gains
The sale of shares in a company that owns real estate, is subject to capital gains tax at the rate of 20%.
Special Defence Contribution
Dividends are subject to Special Defence Contribution at 17%.
VAT / Transfer Tax
No VAT implications exist. Neither transfer taxes apply on the sale of shares.
Non-resident individual
The non-resident individuals are treated in the same manner as resident individuals.
Resident company
Capital gains
The sale of shares in a company that owns real estate, is subject to capital gains tax at the rate of 20%. Sale of shares are not subject to corporation tax in Cyprus. Additionally, the dividend income to be received from the profits earned from the sale of real estate, are exempt from both corporation tax and Special Defence Contribution.
VAT / Transfer Tax
No VAT implications exist. Neither transfer taxes apply on the sale of shares.
Non-resident company
The sale of shares in a company that owns real estate, is subject to capital gains tax at the rate of 20%. Sale of shares are not subject to corporation tax in Cyprus. Additionally, the dividend income to be received from the profits earned from the sale of real estate, are exempt from both corporation tax and Special Defence Contribution. However, if the dividend falls under the non-exemption rule, Special Defence Contribution applies.
DIRECT TRANSFER INTRA CONCERN
(CYPRUS REAL ESTATE TO CYPRUS COMPANY)
Resident Company
Capital gains
The factors behind the sale of a real estate need to be analysed. If the company is trading in real estate as business activity, then corporation tax applies at the rate of 12.5%. Otherwise, capital gains tax at 20% applies.
VAT / Transfer tax
Generally, the supply of immovable property on resale terms is exempt from VAT. However, the supply of a new immovable property is subject to VAT at the standard rate of 19%. “New” immovable properties are those which are supplied for first use.. Leases of immovable property attract VAT at the standard rate of 19% when the lessee is a taxable person and is engaged in taxable activities by at least 90%. The lessor has the right to opt not to impose VAT on the specific property. The option is irrevocable.
Sale of non-developed building land
As from 2 January 2018, the sale of non-developed building land attracts VAT at the standard rate of 19%. The definition of non-developed land includes land intended for the construction of one or more structures that should be used in carrying out a business activity. VAT does not apply on purchases or sales of land which is located in livestock zones or areas which are not intended for development.
Leases of immovable property which effectively transfer the risks and rewards of ownership of immovable property
As from 1 January 2019 leases of immovable property which effectively transfer the risks and rewards of ownership of immovable property are considered to be supplies of goods. They also become subject to VAT at the standard rate.
Transfer fees do not apply on transactions of real estate on which VAT has been imposed. A discount of 50% is provided on acquisitions of properties that are not subject to VAT. In the case of companies’ reorganisations, transfers of immovable property are not subject to transfer fees.
Fiscal unity
The loss of one company can be set off against the profits of another company, provided the two companies are Cyprus tax residents of a “tax group”. A group is formed if:
- A Cyprus tax resident company directly or indirectly holds at least 75% of the voting rights of another Cyprus tax resident company, or
- Both companies are at least 75% owned by a third company
As from 1 January 2015, the interposition of a non-Cyprus tax resident company will not affect its eligibility for group relief if such company remains tax resident in either an EU state or in a country with which Cyprus maintains a tax treaty or a bilateral or multilateral agreement for information exchange.
Reorganisation
No capital gains tax applies in case of approved reorganisation scheme. Additionally, in the case of companies’ reorganisations, transfers of immovable property are not subject to transfer fees.
Non-resident company
Non-resident companies are treated in the same way as resident companies. A company which is not resident in Cyprus but has a permanent establishment in the Republic, can opt to be treated as a resident company.
INDIRECT TRANSFER INTRA CONCERN
(CYPRUS REAL ESTATE TO CYPRUS COMPANY)
Resident company
Capital gains
The sale of shares in a company that owns real estate, is subject to capital gains tax at the rate of 20%.
VAT / Transfer tax
No VAT implications exist. Neither transfer taxes apply on the sale of shares.
Non-resident company
The sale of shares in a company that owns real estate, is subject to capital gains tax at the rate of 20%. Sale of shares are not subject to corporation tax in Cyprus.
DIRECT TRANSFER INTRA CONCERN
(CYPRUS REAL ESTATE TO FOREIGN COMPANY)
Resident company
Capital gains
The factors behind the sale of a real estate need to be analysed. If the company is trading in real estate as business activity, then corporation tax applies at the rate of 12.5%. Otherwise, capital gains tax at 20% applies.
VAT / Transfer tax
Generally, the supply of immovable property on resale terms is exempt from VAT. However, the supply of a new immovable property is subject to VAT at the standard rate of 19%. “New” immovable properties are those which are supplied for first use. Leases of immovable property attract VAT at the standard rate of 19% when the lessee is a taxable person and is engaged in taxable activities by at least 90%. The lessor has the right to opt not to impose VAT on the specific property. The option is irrevocable.
Sale of non-developed building land
As from 2 January 2018, the sale of non-developed building land attracts VAT at the standard rate of 19%. The definition of non-developed land includes land intended for the construction of one or more structures that should be used in carrying out a business activity. VAT does not apply on purchases or sales of land which is located in livestock zones or areas which are not intended for development.
Leases of immovable property which effectively transfer the risks and rewards of ownership of immovable property
As from 1 January 2019, leases of immovable property which effectively transfer the risks and rewards of ownership of immovable property are considered to be supplies of goods. They also become subject to VAT at the standard rate at 19%.
Transfer fees do not apply on transactions of real estate on which VAT has been imposed. A discount of 50% is provided on acquisitions of properties that are not subject to VAT. In the case of companies’ reorganisations, transfers of immovable property are not subject to transfer fees.
Losses
Losses incurred once the company undertakes business activities can be carried forward for the next 5 years. In case when the company is not considered as undertaking trading activities on real estate, any capital losses can be set off against future capital gains with no year restriction.
Fiscal unity
The loss of one company can be set off against the profits of another company, provided the two companies are Cyprus tax residents of a “tax group”. A group is formed if:
- A Cyprus tax resident company directly or indirectly holds at least 75% of the voting rights of another Cyprus tax resident company, or
- Both companies are at least 75% owned by a third company
As from 1 January 2015, the interposition of a non-Cyprus tax resident company will not affect its eligibility for group relief if such company remains tax resident in either an EU state or in a country with which Cyprus maintains a tax treaty or a bilateral or multilateral agreement for information exchange.
Non-resident company
Non-resident companies are treated in the same way as resident companies. A foreign company may wish to set up presence in Cyprus through permanent establishments.
INDIRECT TRANSFER INTRA CONCERN
(CYPRUS REAL ESTATE TO FOREIGN COMPANY)
Resident company
Capital gains
The sale of shares in a company that owns real estate, is subject to capital gains tax at the rate of 20%.
VAT / Transfer tax
No VAT implications exist. Neither transfer taxes apply on the sale of shares.
Losses
Losses incurred once the company undertakes business activities can be carried forward for the next 5 years. In case when the company is not considered as undertaking trading activities on real estate, any capital losses can be set off against future capital gains with no year restriction.
Fiscal unity
The loss of one company can be set off against the profits of another company, provided the two companies are Cyprus tax residents of a “tax group”. A group is formed if:
- A Cyprus tax resident company directly or indirectly holds at least 75% of the voting rights of another Cyprus tax resident company, or
- Both companies are at least 75% owned by a third company
As from 1 January 2015, the interposition of a non-Cyprus tax resident company will not affect its eligibility for group relief if such company remains tax resident in either an EU state or in a country with which Cyprus maintains a tax treaty or a bilateral or multilateral agreement for information exchange.
Non-resident company
Non-resident companies are treated in the same way as resident companies. A foreign company may wish to set up presence in Cyprus through permanent establishments.
TRANSFER CYPRUS REAL ESTATE TO AN EU-COMPANY
If the transferor’s home jurisdiction is in the European Union, the liability to tax on the capital gains may be avoidable if the merger and acquisition provisions applies. Several detailed conditions apply which can be found in the Council Directive of 19 October 2009.
