Property and Real Estate  

LEGAL FRAMEWORK OF PROPERTY AND REAL ESTATE IN CYPRUS

The legal framework in Cyprus is predominantly grounded in common law principles, owing to its historical status as a former British colony. This influence is notably reflected in the translation of British laws into the Cypriot legal system. A notable illustration of this legacy is the maintenance of English as the language of record for Cyprus's civil procedure, a practice upheld until as late as 1989.

Of particular relevance to immovable property matters are two key legislative acts:

1. The Transfer and Mortgage of Immovable Property Law of 1965: This comprehensive legislation addresses various facets of regulations concerning immovable property, drawing its foundations from British property and land law precedents.
2. The Specific Performance Law of 2011: This legislation specifically addresses the legal mechanisms surrounding the enforcement of contractual obligations related to immovable property transactions.

These statutes collectively provide the legal framework governing immovable property transactions in Cyprus, reflecting a blend of historical British legal influences and contemporary Cypriot legal developments.

Cyprus Land Registry Office

The establishment of the Cyprus Land Registry Office can be traced back to British influence. Under this system, all immovable properties within Cyprus are mandated to be registered with the Land Registry Office.

In recent years, there has been a significant modernisation effort, culminating in the launch of an online portal for the Land Registry. Through this portal, property owners have gained convenient access to various services, including the ability to search for their respective properties and obtain essential documents such as title deeds. This digital platform has streamlined processes and enhanced transparency within the realm of property ownership and documentation.

Buying a new property in Cyprus

When embarking on the acquisition of a new property in Cyprus (either off plan or under construction, engaging a reputable law firm specialising in real estate law is strongly recommended. The process entails several key steps:

1. Negotiation and Agreement: The buyer and seller negotiate the purchase price and property specifications, such as size, amenities, etc. Upon agreement, the buyer typically pays a reservation deposit to secure the property.
2. Due Diligence: The buyer's legal representative conducts due diligence on the property. This includes a thorough land registry search to ascertain the absence of any encumbrances affecting ownership rights, as well as a review of all relevant permits (e.g., planning and building permits).
3. Contract Drafting: If the due diligence clears, a contract of sale is drafted. This contract outlines payment terms, completion date, issuance date of the separate title deed, and includes architectural plans and specifications as appendices. A substantial portion of the purchase price (usually 30% to 40%) is typically paid upon contract signing.
4. Deposit and Registration: Once the contract is signed and the initial payment made, it is deposited with the land registry office for specific performance purposes. Subsequent payments are made according to the property's construction progress. The final instalment is typically paid upon delivery of possession.
5. Title Deed Transfer: Upon depositing the contract with the land registry office, the buyer assumes actual and beneficial ownership rights. The buyer is entitled to have the separate title deed transferred into their name. The contract must be filed with the land registry within six months of signing, with a filing fee of €50.

By adhering to these procedural steps and seeking guidance from legal experts, buyers can navigate the acquisition of new properties in Cyprus with confidence and assurance of legal compliance.

Stamp duties

In Cyprus, stamp duty is levied on documents pertaining to assets located within Cyprus or transactions occurring in Cyprus. This duty applies to contracts, written agreements, and similar documents. The calculation of stamp duty is as follows:

1. 0.15% of the agreement value for amounts between €5,000 and €170,000.
2. For agreements exceeding €170,000, a rate of 0.2% is applied.
3. The maximum stamp duty per agreement is capped at €20,000.

The purchaser is typically responsible for paying the stamp duty unless the agreement stipulates otherwise. Stamp duty must be settled within 30 days from the date of document signing. This duty is an important consideration in property transactions and other relevant legal agreements within Cyprus.

VAT on immovable properties

VAT is applicable to the purchase of brand-new properties in Cyprus since the country's accession to the EU in May 2004. Additionally, as of January 2018, VAT is also imposed on the purchase of land. The standard VAT rate is 19%, and it is typically added on top of the purchase price.

The seller is responsible for collecting VAT from the buyer with each payment made towards the purchase price. The collected VAT is then remitted to the relevant government body, the VAT Department.

To alleviate the burden of VAT on buyers, the Cypriot government introduced measures including:

(a) Allowing buyers to apply for a VAT reduction from 19% to 5% for properties intended as their primary residence, commonly referred to as a VAT Reduction Application.

(b) Exempting buyers who pay VAT from Land Registry Transfer Fees when registering the title deed of the property in their name.

However, buyers intending to rent out the property are not eligible for the reduced VAT rate.

If a buyer opts to sell the property prior to the completion of 10 years from the date they made the final instalment payment, they are obligated to reimburse a portion of the VAT. This reimbursement is calculated at a rate of 14% of the VAT, and it is determined by the number of years elapsed since the payment of the last instalment.

For instance, if the buyer sells the property after 3 years from the purchase date, they are liable to repay 70% of the 14% VAT. Similarly, if the property is sold after 7 years, the buyer is liable for 30% of the 14% VAT. This provision aims to regulate the VAT treatment in cases of early property resale within the stipulated timeframe.