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26/02/2013

Acquisition of Immovable Property

Apart from the Constitution of Cyprus which safeguards the fundamental right to ownership and affords the same remedies to Cyprus and non Cyprus alike in the event of infringement to their property rights, there are a number of laws which regulate matters relating to the acquisition of immovable property in Cyprus and these laws can be divided into two categories: General Legislation and Specific Legislation


A. GENERAL LEGISLATION:
This consists of a number of laws, which although not directly regulating matters pertaining to immovable property, they contain provisions applicable to rights which are relevant to the acquisition of immovable property.
1. The Contract Law, Cap 149
The Contract Law regulates commercial transactions at large.
 
2. The Civil Procedure Law, Cap 6
The Civil Procedure Law stipulates for the procedure of the Courts in resolving disputes arising out of any transaction, including, those transactions which pertain to immovable property.
 
3. The Stamp Duty Law of 1963 (as amended)
The Stamp Duty Law enunciates that stamp duty is payable on any contracts or agreements, signed in Cyprus and relating to property (movable or immovable property) situated in Cyprus or any agreements which are brought in Cyprus and of course it includes agreements relating to the sale and acquisition of immovable property. The stamp duty must be paid within 30 days from the day of signing of the sales agreement.
The failure to pay within the prescribed time limit entails a penalty which is calculated as follows:
Assuming that the stamp duty which is payable is €1,000. You deduce €35 and then multiply this by 10%
The payment will be the stamp duty, €1,000 plus €35 plus the penalty.
According to the Stamp Duty Law, stamp duty is payable on the value of the transaction and it is calculated as follows:
• For a contact the value of which is from €1 up to €5.000, no stamp duty is payable.
• For a contact the value of which is €5.001 up to €170.000, the stamp duty payable is 0.1.5% (€1.50 per €1,000).
• Any agreement the value of which is over €170.000, the stamp duty payable is 0.2% (€2 per €1,000 with the cap at €20.000.
It is to be noted that failure to pay the stamp duty on a sales agreement does not render the sale void, but such an agreement can neither be used in Court proceedings nor for the transfer of ownership of the immovable property in the Land Registry until the appropriate stamp duty is paid.
It is to be further noted that in the absence of provisions in the sales agreement, payment of stamp duty is the responsibility of the purchaser.

4. The Value Added Tax Law of 2000- 2012
The Value Added Tax Law of 2000- 2012 makes provisions for reduced VAT at the rate of 5% for a number of goods and services, including the purchase or erection of a dwelling home. It is to be noted that the property must not exceed 275 m² in living areas and an allowance of 88 m² in outdoor areas is made.

5 m² engine room
7 m² storage room
36 m² covered parking areas
40 m² covered verandas

An application must be filed with the VAT authorities, by the interested party, i.e. the investor, at any time during the construction of the property or prior to accepting delivery of the property by the developer. From a practical point of view the investor may authorize a person in Cyprus, under power of attorney, to file the application on his behalf. 

By way of supporting documents to the application, the investor must also file the following documents:

a. Copy of the passport of the applicant
b. Marriage certificate, where applicable
c. a stamped  copy of the sales agreement,
d. the architectural plans
e. a certified copy of the application filed with the relevant authorities in order to secure a building permit
f. a copy of the building permit
g. declaration by the contractor that he was in possession of his annual license and possesses the contractors classification for the respective project when the project was being constructed.
h. Utility bills registered in the name of the investor. It is to be noted that the utility bills must be adduced within six months from the time the applicant has taken possession of the property.

It is to be noted the successful applicant shall obtain a VAT exemption for the first 200 m² of the property. Approval of the applicants must be collected by the investor in person or by an authorized attorney.

A. SPECIFIC LEGISLATION:
Moving on, I shall analyze the main laws in the category of Specific Legislation which are applicable to immovable property in Cyprus.

I. The Acquisition of Immovable Property (Aliens) Law, Cap 109
The AIP Law sets out some limitations for the acquisition of immovable property by aliens. The term alien is defined as any person not being a citizen of the Republic of Cyprus, a foreign company, or a trust which has been created in favour of an alien person.

Under this Law no alien cannot acquire immovable property unless the prior permission of the Council of Ministers has been obtained. Permission shall be granted to a bona fide alien who is seeking to acquire a flat, a house, or land (not exceeding three donums) in which he/she shall erect a house which shall be used as a dwelling by the buyer and his family and not for commercial purposes.

Members of the family of an alien who has acquired immovable property in the Republic of Cyprus may also acquire their own property in the Republic of Cyprus, provided that they are financially and residentially independent from the original buyer.

Applications to secure a permit by the Council of Ministers must be filed with the District Office of the city where the property is located. The consent of the Council of Ministers is granted easily, provided that the applicant submits the following documents:
• Statement by a Cyprus bank evidencing that the payment proceeds have emanated from external funds
• Copies of passports
• marriage certificates if and where applicable,
• a copy of the sales agreement, duly stamped
• survey plan
• Copy of building permit for the erection of the property (whether house or residential development) (this is needed where no separate title deeds have yet been issued for the property)
• Level plan of the property. If the property is part of a residential development, the plan submitted must show the position of the property in relation to the entire project.

II. The Sale of Land (Specific Performance) Law Cap 232
Under the Specific Performance Law, a purchaser of immovable property may secure the remedy of specific performance by depositing a duly stamped copy of the contract of sale of land with the Land Registry within six months from the date of its execution, thus, preventing the vendor from transferring the property to another person or charging it in favour of any financial institution because the purchaser will have priority over other purchasers.

III. Immovable Property Tenure, Registration and Valuation Law, Cap 224 which regulates ownership of immovable property in Cyprus at large. What is relevant for our purposes is the recent amendments to the Immovable Property Tenure, Registration and Valuation Law, which give the right either to the director of the land registry or after an application by an interested party (i.e. the owner of property) to order the developer to proceed with the separation of the development and the issue of separate title deeds to the property.

These amendments do not go a long way in resolving the problem faced by many purchasers of immovable property who sometimes have to wait for years before a separate title deed is issued for their property.

Further change in the law in this area so that investors may acquire title to their property without much delay is both desirable and necessary.
IV. The Land And Surveys, (Fees and Taxes) Law, Cap 219
The first €85.430.07 at 3%
The next €85.430.07 at 5%
Any amount thereafter is paid 8%.

Presently no transfer tax is payable until the 31st December 2014 provided the property in question is subject to VAT.

If the property is a first sale and it is not subject to VAT, 50% of the transfer tax is payable.

V. The Capital Gains Tax Law 52/1980
Capital gains tax is levied at the rate of 20% on gains realized from the sale of immovable property, and this includes gains from the disposal of shares in private companies which own immovable property in Cyprus.

The Capital Gains Tax Law exempts, inter alia, the following categories of disposals from Capital Gains Tax:
• Gifts between relatives up to the third degree of kindred
• Gifts to limited companies whose shareholders are family members of the donor and remain as a shareholder for at least five years after the gift was made
• Gifts by family companies to their shareholders, provided that the property given was originally acquired as a gift
• Gifts made to charitable institutions or to the Republic of Cyprus
• Exchange of  immovable properties.