A significant tax that greatly impacts the decision to sell a property is the Capital Gains Tax (CGT). But what exactly does this term mean?
The Capital Gains Tax is a specific tax applied to the sale or transfer of immovable property (house, apartment, land, etc.) located within the Republic of Cyprus. A prerequisite is that there must be a profit from the sale of the specific property. In such cases, this profit is taxed at 20%, and the cost is entirely borne by the seller.
Understanding the tax system of Cyprus, is of paramount importance for individuals, companies, or other entities involved in the real estate business within the republic.
Deductions
Various factors contribute to reducing or even eliminating the payable tax (CGT), such as:
A) The amount paid to the Land Registry for transfer fees.
B) Any commission paid to a registered real estate agent. For the purposes of tax reduction, only the commission paid to the agent is taken into account, while advertising or marketing expenses are not included.
C) Additional expenses or improvement works on the property can be considered by the tax department, provided that the beneficiary submits the necessary documentation (invoices, receipts, etc.). Acceptable improvements include permanent or structural changes, such as swimming pool, garage, or central heating system, but do not include decorative works such as painting or furnishing.
All the required permits must have been obtained for such additions.
D) Legal fees – The fee of a legal representative.
Lifetime Allowances
Every individual is entitled to an allowance for their first property sale. If the maximum exemption limit is not exhausted during the first sale, the individual can use the remaining amount in subsequent sales.
There are three exemptions that may contribute to the amount subject to tax exemption:
1) Each individual is entitled to a tax-free amount of €17,086 for property sales. In cases of co-ownership, this allowance applies to each owner separately.
Example for a single owner:
Taxable profit €20,000 – €17,086 = €2,914 x 20% = €582.80 (Amount to be paid to tax as CGT).
Example for two owners:
Taxable profit €20,000 – (€17,086 + €17,086) = €0 (No amount is owed for CGT).
* In this case, each owner has benefited from a tax exemption of €10,000 (€20,000/2) instead of €17,086. Thus, the remaining €7,086 can be used in the next sale.
2) If the sale concerns a property that has been used as a private main residence for the past 5 years, the exemption increases from €17,086 to €85,430. Necessary documentation must be submitted to the tax department to support this claim.
If the applicant is a co-owner of the property, the allowance will be granted based on their ownership percentage. For example, if they own 50% of the property, they will be entitled to half the allowance, i.e., €42,715.
3) If the sale concerns agricultural land, farmers are entitled to an individual exemption of €25,659. This amount is deducted from the taxable capital gain.
Exemptions
The following property sales are exempt from CGT in Cyprus:
1. Inheritance (transfer due to death).
2. Gift or donation between relatives up to the third degree of kinship.
3. Gift or donation to a company where the shareholders are family members of the donor and remain family members for five years after the transfer.
4. Gift or donation from a family company to its shareholders if the company acquired the gift under specific conditions.
5. Gift or donation to charitable organizations (non-profit organizations), the Republic of Cyprus, or political parties.
6. Transfer of property between divorced couples.
7. Transfer due to corporate restructuring.
8. Transfer due to loan restructuring (under conditions).
9. Expropriations.
* Important Note: Shares listed on a recognized stock exchange are exempt from CGT.
Conclusion
Calculating this tax is not a straightforward procedure, as multiple factors are considered to determine the profit derived from the sale of the property.
To this end, our office has developed a specialized software, that can calculate the amount owed to Capital Gain Tax quickly, easily, and accurately.
Our user-friendly CGT calculation tool is offered free of charge through our website, covering all possible scenarios and factors that may affect the taxable amount.
Additionally, our experienced team can guide and advise property owners for the correct calculation of CGT, helping them make well-informed decisions with a complete understanding of their tax obligations.