Capital Gains Tax Cyprus: Essential Investor Guide

Expats & Business | Updated: 17. Apr 2024

Are you baffled by the intricacies of the capital gains tax Cyprus?

Fear not, as this comprehensive guide is here to simplify it for you. Whether you're an individual or a company, resident or non-resident, understanding this tax is crucial when planning to sell property or shares in Cyprus.

Let's delve into the details, from current rates to exemptions, deductions, and even the latest updates.

Overview of Capital Gains Tax in Cyprus

Capital Gains Tax (CGT) in Cyprus is a tax imposed on the profit made from selling or disposing of an asset. This asset can be anything from a piece of real estate to shares in a company that owns real estate. The tax is applied to the gain, not the total amount of money received.

In Cyprus, the scope of the capital gains tax is quite broad. It applies to the disposal of both movable and immovable property, as well as the disposal of shares in companies that own immovable property. This means that whether you're selling a house, a piece of land, or shares in a company that owns real estate, you're likely to be subject to capital gains tax.

Current Rate of Capital Gains Tax in Cyprus

The current rate of capital gains tax in Cyprus is set at 20%. This is a flat rate, meaning it applies to everyone, regardless of the amount of capital gain or the individual's personal income tax rate. It's important to note that this rate applies only to the gain, not the total sale price of the asset.

Applicability of Capital Gains Tax

Capital gains tax in Cyprus applies to both companies and individuals. This includes both residents and non-residents of Cyprus. So, regardless of your tax residence status, if you're disposing of an asset that falls within the scope of the capital gains tax in Cyprus, you're required to pay the tax.

Recent Updates on Capital Gains Tax in Cyprus

The last update on the information regarding capital gains tax in Cyprus was on 09/04/2021. It's important to stay up-to-date with these updates as they may affect the amount of tax you're required to pay. However, for comprehensive details on exemptions, deductions, and specific regulations, additional research may be required. Tax laws can be complex and change frequently, so it's always a good idea to seek professional advice when dealing with capital gains tax in Cyprus.

Capital Gains Tax on Property Sales in Cyprus

In Cyprus, capital gains tax is applicable to the profit made from the sale of real estate. This means that if you sell a property located in Cyprus, you are required to pay a tax on the gain you realize from the sale. This is an important aspect of the Cypriot tax system that both residents and non-residents should be aware of when considering property transactions in the country.

Applicability of Capital Gains Tax on Property Sales

Capital gains tax in Cyprus applies to the profit made from the sale of real estate. This includes all types of property, whether residential, commercial, or land. The tax is calculated based on the difference between the selling price and the acquisition cost of the property. This is a key aspect of the capital gains tax Cyprus regime that property owners need to understand.

Impact of Property Ownership Percentage on Taxable Gain

When calculating the taxable gain for capital gains tax in Cyprus, the percentage of property ownership is taken into account. This means that only the gain attributable to the seller's ownership percentage is taxed. For example, if you own 50% of a property, only 50% of the gain realized from the sale of the property will be subject to capital gains tax.

Special Exemptions for First-Time Property Sales

Cyprus offers special exemptions for first-time property sales. These exemptions are subject to certain conditions, such as the property being the primary residence of the seller and the size of the land. This is a significant benefit for first-time property sellers in Cyprus, as it can significantly reduce their capital gains tax liability.

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Record Keeping for Capital Gains Tax Calculation

Keeping accurate and comprehensive records is crucial when calculating capital gains tax in Cyprus. All costs associated with the acquisition and improvement of the property, as well as expenses incurred during the sale process, are considered when calculating the taxable gain. This includes costs such as legal fees, agent commissions, and advertising costs. Therefore, property owners are advised to keep detailed records of these expenses to accurately calculate their capital gains tax liability.

Informative chart illustrating capital gains tax rates in Cyprus

Capital Gains Tax on Shares of Companies in Cyprus

Understanding the applicability of the capital gains tax in Cyprus is crucial, especially when it comes to the sale of shares in companies. One of the key aspects to note is that this tax also applies to the sale of shares of companies that own real estate in the country.

Applicability of Capital Gains Tax on Share Sales

In Cyprus, the capital gains tax is not limited to real estate transactions. It also extends to the sale of shares in companies that own real estate within the country. This means that if you sell shares in a company that owns property in Cyprus, you may be liable to pay capital gains tax on the profit you make from the sale. This is an important aspect of the capital gains tax Cyprus law that many investors often overlook.

However, it's not all shares that are subject to capital gains tax in Cyprus. There are certain exemptions in place, particularly for shares listed on recognized stock exchanges.

Exemptions for Listed Shares on Recognized Stock Exchanges

Cyprus has a favorable tax regime for investors in the stock market. Shares listed on any recognized stock exchange are exempted from capital gains tax. This means that if you sell shares that are listed on recognized stock exchanges, the profit you make from the sale will not be subject to capital gains tax in Cyprus. This exemption is part of the government's efforts to encourage investment in the stock market and can be a significant benefit for investors.

In conclusion, while the capital gains tax Cyprus law applies to the sale of shares in companies that own real estate, there are exemptions for shares listed on recognized stock exchanges. It's always advisable to seek professional advice to understand these tax laws better and to ensure compliance.

Calculation of Capital Gains Tax in Cyprus

Understanding how to calculate the capital gains tax in Cyprus is crucial for anyone planning to sell property or shares in property-holding companies. The calculation involves several steps and factors, including determining the taxable gain, accounting for inflation, and considering deductible expenses.

Determining the Taxable Gain

The first step in calculating the capital gains tax in Cyprus is determining the taxable gain. This is the difference between the disposal proceeds, or selling price, and the adjusted original cost of the property. In other words, if you sell a property for more than you originally paid for it, the difference is your taxable gain.

Accounting for Inflation in Taxable Gain

When calculating the taxable gain, it's important to account for inflation. This means adjusting the original cost of the property to reflect its current value. In Cyprus, inflation value tables are available for reference to help you make this adjustment accurately.

Deductible Expenses in Taxable Gain Calculation

In addition to accounting for inflation, certain expenses can be deducted from the taxable gain. These include transfer fees, improvements to the property, legal fees, agent commissions, loan interest, and advertising costs related to the sale of the property. By deducting these expenses, you can reduce your taxable gain and, consequently, your capital gains tax liability in Cyprus.

Online Platforms for Managing Tax Affairs

Managing tax affairs can be a complex task, but online platforms like taxapp.cy can make it easier. These platforms provide a range of services, including tax news, advice, and account management services. They can be a valuable resource for anyone dealing with capital gains tax in Cyprus, helping to simplify the process and ensure compliance with tax regulations.

Anti-Avoidance Rules in Cyprus Capital Gains Tax

Understanding the anti-avoidance rules is a crucial part of navigating the capital gains tax in Cyprus. These rules are designed to prevent tax evasion and ensure that everyone pays their fair share. They apply to specific situations, such as the exemption for profits from disposals of a permanent establishment (PE) abroad and transfers of property into or out of family companies.

Anti-Avoidance Rules for Foreign PE Profits Exemption

In the context of capital gains tax in Cyprus, profits from the disposal of a permanent establishment (PE) abroad can be exempt. However, anti-avoidance rules are in place to prevent misuse of this exemption. These rules stipulate that the exemption does not apply if the PE was established with the primary intention of avoiding tax. The authorities will assess the nature and purpose of the PE to determine if the exemption applies. Therefore, it's essential to understand these rules and ensure that your foreign PE is genuinely established for business purposes.

Anti-Avoidance Rules for Family Company Transfers

Transferring property into or out of family companies is another area where anti-avoidance rules apply in the context of capital gains tax in Cyprus. These rules are designed to prevent families from manipulating property transfers to avoid tax. For example, if a property is transferred into a family company, the family must maintain ownership for a specified period to qualify for any tax benefits. If the property is sold or transferred out of the family company before this period ends, the tax benefits may be revoked. Therefore, it's crucial to plan property transfers carefully and understand the implications of these rules.

Exemptions and Deductions in Cyprus Capital Gains Tax

When it comes to the capital gains tax Cyprus imposes, there are several exemptions and deductions that can significantly reduce your tax liability. Understanding these can be crucial in your tax planning strategy.

Exemptions for Specific Securities

The first exemption to note is that Cyprus does not impose capital gains tax on profits made from the sale of certain securities. These include shares, bonds, and debentures. So, if you're an investor in these types of securities, you can enjoy your profits without worrying about capital gains tax.

Exemptions for Real Estate Investment Trusts and Mutual Funds

Furthermore, Cyprus also offers exemptions for Real Estate Investment Trusts (REITs), mutual funds, and units in stock exchange indices. If you're an investor in these types of assets, this is another way you can potentially avoid capital gains tax in Cyprus.

Exemptions for Disposals of Permanent Establishment Abroad

If you're a business owner with a permanent establishment (PE) abroad, you'll be pleased to know that profits from disposals of such PEs are not subject to capital gains tax in Cyprus. However, it's important to note that certain anti-avoidance rules apply, so it's advisable to seek professional advice to ensure you comply with these rules.

Lifetime Exemptions for Capital Gains Tax

Cyprus also provides lifetime exemptions for capital gains tax. These exemptions apply to the disposal of a private principal residence, disposal of agricultural land by a farmer, and any other disposal.

Exemption for Private Principal Residence

The exemption for the disposal of a private principal residence is particularly noteworthy. If you sell your primary home, you may be eligible for a significant reduction in your capital gains tax liability in Cyprus.

Exemption for Agricultural Land

Farmers in Cyprus also enjoy a specific exemption. If you're a farmer and you sell your agricultural land, you may be exempt from capital gains tax on the profits from that sale.

Exemption for Other Disposals

There are also exemptions for other types of disposals. These are subject to specific conditions, so it's important to consult with a tax professional to understand if you qualify.

Exemptions for Gifts and Donations

Lastly, Cyprus also provides exemptions for gifts and donations. These exemptions apply to gifts between close relatives, gifts to family companies, gifts to charities, property exchanges, and donations to political parties. This means that if you're planning to make a gift or donation, you may be able to do so without incurring capital gains tax.

Seeking Professional Advice for Capital Gains Tax in Cyprus

Navigating the complexities of capital gains tax in Cyprus can be a daunting task, especially for those unfamiliar with the intricacies of tax laws and regulations. The rules can be complex and the penalties for non-compliance severe. Therefore, it is crucial to seek professional advice when dealing with this aspect of taxation.

Overview of Capital Gains Tax in Cyprus infographic

Importance of Professional Advice

Professional advice can provide invaluable guidance and clarity, helping you to understand the implications of capital gains tax in Cyprus. Tax professionals have in-depth knowledge of the tax system and can offer tailored advice to suit your specific circumstances. They can help you navigate the complexities of the tax laws and ensure you comply with all the necessary regulations, thereby avoiding potential penalties. Moreover, tax professionals stay up-to-date with the latest changes and updates in the tax laws, which is particularly beneficial for those considering the top reasons to invest in Cyprus. Understanding these incentives can provide substantial tax savings and strategic advantages for individuals and businesses alike. This means they can provide you with the most current and accurate information, ensuring you are not caught off-guard by any unexpected changes. Their expertise can also help you identify potential tax-saving opportunities, such as exemptions and deductions, that you may not be aware of.

Changes in Tax Rates, Scope, and Reliefs

It's important to note that tax rates, scope, and reliefs are subject to change. Changes can occur due to various factors, such as amendments to legislation, changes in government policy, or shifts in economic conditions. These changes can have a significant impact on your tax liability.

Therefore, it is advisable to seek personalized advice based on the current laws and practices. This will ensure that you have the most accurate and up-to-date information, allowing you to make informed decisions about your tax affairs. Remember, understanding and effectively managing your capital gains tax in Cyprus is crucial for both financial planning and legal compliance.

Other Relevant Taxes in Cyprus

When discussing capital gains tax in Cyprus, it's crucial to also consider other related taxes that could impact your financial planning. These include the levy on sale proceeds from disposals of immovable property and the now-abolished immovable property tax (IPT).

Levy on Sale Proceeds from Disposals of Immovable Property

In addition to the capital gains tax Cyprus imposes on the sale of real estate, there is another important tax to consider. Introduced on 22 February 2021, a levy of 0.4% is imposed on the sale proceeds from the disposal of immovable property. This means that when you sell a property in Cyprus, 0.4% of the total sale price is deducted as a levy. This levy is applicable regardless of whether the property has made a gain or a loss. It's important to factor in this levy when calculating your potential net proceeds from a property sale in Cyprus.

Abolition of Immovable Property Tax

In the past, owners of immovable property in Cyprus were also subject to the Immovable Property Tax (IPT). However, this tax was abolished as of 1 January 2017. This abolition has simplified the tax landscape for property owners in Cyprus, allowing them to focus on managing their capital gains tax obligations. Despite the abolition of the IPT, the capital gains tax Cyprus imposes on property sales remains a significant consideration for both individuals and companies.

For those venturing into the market, having a solid real estate investing business plan is crucial, especially for beginners in Cyprus. It not only prepares you for the intricacies of property investment but also aligns with tax implications which must be considered.

In conclusion, while the capital gains tax in Cyprus is a key tax to consider when selling property, it's important to also be aware of other related taxes. These can impact the overall financial outcome of your property sale. Always consider seeking professional advice to ensure you are fully informed about your tax obligations.

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Conclusion: Navigating Capital Gains Tax in Cyprus

In conclusion, understanding the capital gains tax in Cyprus is crucial for both individuals and entities planning to sell property or shares in property-holding companies in the country. As we have seen, the standard rate of capital gains tax in Cyprus is 20%. However, there are several exemptions and deductions available that can significantly reduce the taxable gain.

For instance, exemptions are available for the disposal of a private principal residence, agricultural land by a farmer, and any other disposal. Additionally, capital gains tax does not apply to profits from disposals of a permanent establishment abroad, subject to certain anti-avoidance rules. Furthermore, the tax is not imposed on gains from the sale of securities such as shares, bonds, and debentures.

The taxable gain is calculated as the difference between the selling price and the acquisition cost, adjusted for inflation and certain allowable expenses. This includes transfer fees, improvements to the property, legal fees, agent commissions, loan interest, and advertising costs related to the sale of the property. Investors should be aware that choosing the right investment funds in Cyprus could potentially mitigate some of these costs through smart portfolio diversification. It's important to note that non-residents are also subject to capital gains tax on the disposal of immovable property located in Cyprus.

Finally, it's worth noting that the rules surrounding capital gains tax in Cyprus can be complex, and penalties for non-compliance can be severe. Therefore, it is advisable to seek professional advice when dealing with capital gains tax in Cyprus. The tax rates, scope, and reliefs are subject to change, and individuals should seek personalized advice based on current laws and practices.

In summary, navigating the capital gains tax in Cyprus can be a complex process, but with the right understanding and advice, it can be successfully managed. It's crucial to stay informed and up-to-date with the latest changes and updates in the tax laws to ensure compliance and make the most of the available exemptions and deductions.

Frequently Asked Questions (FAQs)

Understanding the complexities of the capital gains tax in Cyprus can be challenging, especially for those who are new to this subject. To help clarify some of the most common queries, we've compiled a list of frequently asked questions and their concise answers.

What is the standard rate of Capital Gains Tax in Cyprus?

The standard rate of Capital Gains Tax in Cyprus is 20%. This is applicable to both resident and non-resident individuals and companies, and it is calculated on the profit made from selling an asset.

Are there any exemptions available for Capital Gains Tax in Cyprus?

Yes, there are several exemptions available for Capital Gains Tax in Cyprus. These include the disposal of a private principal residence, disposal of agricultural land by a farmer, and any other disposal. Each of these exemptions has specific conditions that must be met, so it's important to consult with a tax professional to ensure eligibility.

How is the taxable gain calculated for Capital Gains Tax in Cyprus?

The taxable gain for Capital Gains Tax in Cyprus is calculated as the difference between the selling price and the acquisition cost. This calculation is adjusted for inflation and certain allowable expenses and deductions. This includes costs such as transfer fees, improvements to the property, legal fees, agent commissions, loan interest, and advertising costs related to the sale of the property.

Are non-residents also subject to Capital Gains Tax in Cyprus?

Yes, non-residents are also subject to Capital Gains Tax on the disposal of immovable property located in Cyprus. This means that even if you're not a resident of Cyprus, but you own and sell property in the country, you're required to pay Capital Gains Tax on the profit made from the sale.

What are the penalties for non-compliance with Capital Gains Tax regulations in Cyprus?

Failure to pay Capital Gains Tax on time in Cyprus can result in penalties and interest charges. The exact amount of the penalty or interest charge can vary, so it's crucial to ensure that all tax obligations are met on time to avoid these additional costs.

Franz Langstein
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Hi! Ich lebe seit 5 Jahren auf dem wunderschönen Zypern und hoffe, ich kann dir mit meinem Wissen vor Ort den Urlaub oder gar das Auswandern erleichtern :-)
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