BUYING PROPERTY IN CYPRUS The geographical position of Cyprus in the eastern Mediterranean, at the crossroads of Europe, Asia and

Africa, its excellent climate, the friendliness and hospitality of its people and the relatively low cost of living, are just some of the reasons that have made Cyprus attractive to foreign investors for over 20 years now. To that, one can add the benefits derived from the entry of Cyprus into the European Union with human rights and private property well safeguarded, the reliable banking institutions, the fact that English is widely spoken, and legal and accountancy services of a very high standard. This article includes comprehensive information regarding purchasing and/ or owning a house in Cyprus. It incorporates notes of Cyprus Law relating to acquiring immovable property in Cyprus, tax issues in respect of buying/selling the property (capital gains tax) and notes on personal tax for permanent and non-permanent residents. Notes Of Cyprus Law Relating To The Acquisition Of Immovable Property By Foreigners Acquisition - Under the Immovable Property Acquisition Law foreign nationality individuals, companies and trusts may acquire freehold immovable property in Cyprus, subject to prior permission by the Council of Ministers. Normally such permission is granted to acquire a flat, house or a piece of land for the erection of a house not exceeding three donums (4014m). This procedure is merely a formality and can be easily carried out for you by our associated law firm. Once permission is granted and the property is registered in the individuals name, there is no restriction for selling the property or disposing of it by will. Exchange Control - With Cyprus joining the E.U. exchange control restrictions have been abolished both in respect of purchasing and selling the immovable property. Contract of Sale of Immovable Property - Under the Cyprus Law such contracts must be in writing. It is also advisable that contracts of sale be deposited in the relevant District Lands Office within two months after the signing of the contract, so that the purchasers right to pursue the remedy of specific performance in the event of breach can be protected. Ownership in Cyprus is denoted by title deeds, issued by the District Land Office. All contracts must therefore provide for the transfer and registration of the property in ones name and for obtaining a title deed. Transfer of the Title Deed - Transfer can be affected once permission to acquire has been granted by the Council of Ministers. Transfer fees are payable by the purchaser on the sale price as follows: VALUE OF PROPERTY * RATE % Up to CY50.000 3% CY50.000 to CY100.000 5% Over CY100.000 8% Immovable Property Tax - This tax is imposed annually at the following rates on the current market value as at 1.1.1980 of immovable property situated in Cyprus and owned as at 1st January each year. VALUE OF PROPERTY * RATE 0 CY100.000 0 CY100.001 CY250.000 2.5

CY250.0001 CY500.000 OVER CY500.000 4

3.5

The above rates apply to both legal persons and individuals. Benefits can arise if the property is jointly owned by two individuals as the value of property represents the cost to each owner. For example if a property was jointly bought by two individuals for CY110.000 then the cost for each owner for the calculation of the transfer fees and the immovable property tax is CY55.000 and the respective rates would have been 3% and 0% instead of 5% and 2% as the cost falls into the lower bands. Stamp Duty - A one-off stamp duty is levied on the purchase of property in Cyprus. The rates are dependent on the contractual purchase amounts and payment is due within 30 days of signing the sale agreement. The amount is payable to the purchaser to the Tax Authorities. VALUE OF PROPERTY * RATE % 0 CY100.000 0.15% OVER CY100.000 0.20% Inheritance Tax - This was abolished as of 1st January 2000. Local Authority Tax - The tax covers the cost of refuse disposal, street lighting etc. and ranges between CY30 - CY100 per annum depending on the size of the property. Selling Your Property Capital gains tax is paid on gains arising from the sale of immovable property. Tax due is 20% on gains realized, which is calculated as follows: Proceeds from the sale less cost of Property, professional and legal fees, commission, interest paid, inflation allowance and investment allowance (CY10,000 on disposal of any property and CY50,000 on disposal of residence provided that he has been using the same as his residence for at least 5 years prior to the sale). The investment allowance is granted only once, unless it has not been exhausted at the first sale, in which case any balance would be carried forward. The investment allowance is granted to each owner of the property. For example, if the property is owned by a husband and wife then the total investment allowance is CY20,000. The following categories of dispositions are exempt from Capital Gains Tax: Transfers by reason of death. Donations between relatives up to the third degree of kindred. Donations to limited companies all the shareholders of which are members, and continue for 5 years after the donation to be members, of the family of the donor. Donations from family companies to their shareholders, but only in cases where the property gifted was originally acquired by the company also by way of a gift. Donations to Charitable Institutions or to the Republic of Cyprus. Exchanges of permanent residence. Compulsory acquisitions. Example: Capital gains calculation Proceeds on sale of property (all in CYP) 200.000 Cost of acquisition (100.000)

Inflation allowance 100.000 x 52,67% Gain on sale of property Less Investment allowance* Taxable Gain on sale of property Capital gains tax due 37.300 x 20%

(52.670) 47.300 (10.000) 37.300 7.460

Note that investment allowance is given to each person. Therefore, in our example, if the property owners were two persons instead of one, then the total allowance would beCY20,000 with taxable gain of CY27,300 and capital gains tax due CY5.460. Goods Eligable to Import Free of Duty Intending residents are persons who are residents abroad and satisfy the Director of Customs that they intend to live in Cyprus permanently. These individuals are allowed to import free of duty the following goods: Wearing apparel Other personal effects Household goods and furniture Professional tools and appliances and any other goods which an intending resident and his dependants may, in the opinion of the Director of Customs and Excise, reasonably require One shotgun and one air rifle Personal computers Image and sound recording appliances Pleasure and sports boats (irrespective of the above relief, yachts and other boats for pleasure or sports are charged with 10% excise duty) Ponies/ horses Prerequisites for the granting of relief are that the goods: Are intended solely for the personal use of the intending resident or his dependants and the quantities imported are, in the opinion of the Director, reasonable. Are imported within a period of twelve months prior to or two years after the arrival of the intending resident. Tax Issues Individuals are taxed in Cyprus based on their residency status, which falls into two main categories; permanent residents and non-residents. (a) Permanent Residents An individual who spends at least 183 days in Cyprus in the tax year will be considered to be a Cyprus resident for tax purposes. These are people who: Either settle permanently in Cyprus upon retirement. Are foreigners who live indefinitely or for a fixed period of time in Cyprus as employees, either of their own International Business (Offshore Company) or of a local or offshore firm, and who choose to purchase their own property in Cyprus rather than live in rented premises. Are business people who wish to take advantage of tax and other fiscal advantages offered when having the Cyprus tax residency.

The Cyprus Government gives a series of incentives to these people, including very low taxation of their income, which emanates from abroad. Individuals are taxed in Cyprus on the following types of income: Profits from a business activity in Cyprus. Profits earned from a permanent establishment abroad are fully exempt from corporation tax. Worldwide employment income. Pensions in respect of past employments exercised in Cyprus. Pensions exercised outside Cyprus will be taxed either at normal income tax rates as shown on the table below or at the option of the taxpayer, at the flat rate of 5% on the excess of CYP2.000. Income tax rates applicable from 2004 Taxable Income Rate Up to CYP10.000 Nil CYP10.001 - CYP15.000 20% CYP15.001 - CYP20.000 25% Above 20.000 30% Deductions and Allowances The following can be deducted in calculating the tax liability: There will be a deduction of 20 per cent for the first 3 years in Cyprus, limited to CY5.000 (US$8.000). Life assurance premiums. Contributions to state social security and welfare fund and pension funds. Expatriate Tax & Social Security Contributions Expatriate employees are taxed as follows: Individuals who perform all their employment duties abroad will not be taxed on their earnings Those who are present for 183 days or more in Cyprus in the tax year, will be taxed on their worldwide earnings Those who are present for less than 183 days in Cyprus in the tax year will be taxed on their earnings attributed to their days of work in Cyprus. Individuals who originate from countries where a social security agreement has not been signed between their country and Cyprus will be liable to social security contributions. UK citizens can opt out for a period of three years as the relevant agreement has been signed between the two countries. Contributions are currently payable by both employers and employees at the rate of 6.3% Individuals are not taxed in Cyprus on interest and dividends received from sources either within Cyprus or from abroad except for Defense fund contribution as explained here below. Defense fund contributions are payable on the following cases: 10% tax charge on interest from investments in Cyprus or abroad. 3% tax charge on 75% of the gross rental income from real property wherever it is located.

15% tax charge on dividends received from both Cypriot and non-Cypriot companies. Relief in the form of tax credit is given for any foreign taxes paid on the above. Gains from disposal of securities Any gains realised from the disposal of securities are not subject to taxation in Cyprus. This exemption applies for all gains including those arising from trading in securities. Double Tax Treaties Individuals or Companies who choose to reside in Cyprus may also enjoy, under certain circumstances, the benefits of the Double Taxation Treaty of their country of origin with Cyprus, if there is one (the main objective of the Double Tax treaties is to avoid the double taxation of income earned in any of the two contracting countries). Cyprus has signed 32 such treaties, regulating in effect tax relations with over 40 countries. For example, United Kingdom citizens may take advantage of the Double Taxation Treaty existing between the U.K. and Cyprus. This enables you to receive your pensions and investment income in Cyprus free of U.K. withholding tax. This Treaty is unique to Cyprus since it includes both public and private sector pensions. Insurance pensions can be paid to retirees in Cyprus on a similar tax-free basis, and are index-linked by virtue of the Reciprocal Agreement, compared to their frozen status in other overseas destinations. Non residents These are people who: Either are holidaymakers who purchase properties in Cyprus as holiday homes or for possible permanent places of abode upon retirement, or for the sale thereof with a reasonable profit at a later stage. Business investors and companies who acquire property in Cyprus for tourist or industrial purposes, making use of the location and climate of Cyprus, the excellent infrastructure and the various incentives offered for these purposes, especially in the area of taxation. Individuals are taxed in Cyprus on the following types of income: Employment income for work performed in Cyprus. Profits from a business activity which is carried out through a permanent establishment in Cyprus. Pensions in respect of employments exercised in Cyprus (except for pensions paid from a fund established by the Cypriot Government or any local authority). Note: Interest and dividends paid to non-residents carry no withholding tax.