Foreign investment in immovable property
The location of Cyprus in the eastern Mediterranean at the crossroads of Europe, Asia, the Middle East and Africa, its reliable and transparent legal system, combined with its membership of the EU, the excellent infrastructure coupled with reliable communication with all parts of the world, the relatively low cost of living, excellent climate and the friendliness and hospitality of its people, are just some of the reasons that have made Cyprus attractive to foreign investors.
Non-Cypriots investing in immovable property in Cyprus may generally be classified in the
following four main categories:
Retired residents . Many people choose to settle permanently in Cyprus upon retirement. A number of incentives are available to retired people, including very low taxation of pension income received from abroad. The first €3,417 per year of such income is tax-free and the remainder is subject to tax at only 5%.
Retirees may also enjoy, under certain circumstances, the benefits of any double taxation treaty their country of origin has concluded with Cyprus . Double tax treaties are in place covering more than 40 countries, and a further 20 are under negotiation. Last, but not least, there is no inheritance tax in Cyprus .
Economically active residents. This growing category includes non-Cypriots who live indefinitely or for a fixed period of time in Cyprus as employees, either of their own international business company or of a local or international firm, and who choose to buy their own home in Cyprus rather than live in rented property. It also includes international business companies purchasing houses for their directors.
Holiday makers and speculators . Many people purchase properties as holiday homes, often with a view to permanent residence in Cyprus once they retire, or to sell at a profit at a later stage. Profits from the sale of immovable property may be repatriated, subject to capital gains tax.
Business investors. These are foreign individuals and companies who acquire property in Cyprus for tourism, business premises or industrial purposes, making use of the location and climate of Cyprus , its excellent infrastructure and the various incentives offered for these purposes, especially in the area of taxation.
Most property developers in Cyprus are long-established and reliable, and Cyprus has a transparent and well-regulated legal system, with world-class professional and financial services available in the major cities. Nevertheless, as in every country, the complexity of the legislation on immovable property and the formalities which need to be considered make it imperative to seek and obtain reliable and efficient legal advice from the outset in order to avoid unpleasant results and undesirable consequences later.
The following is a brief analysis of the key features of Cyprus legislation directed at the protection of ownership of, and the rights pertaining to, immovable property, and the regulation of associated transactions, particularly where foreign investors are concerned.
The Constitution of Cyprus
The Constitution of Cyprus establishes the equality of all persons irrespective of their nationality and includes provisions for the protection of human rights of all persons without discrimination. Any violation by an administrative authority of a person's fundamental rights entitles that person to request the authority in question to remedy the situation. The authority has a period of 30 days during which it must give a prompt answer to the request.
Furthermore, such a person has free access to any competent court in Cyprus , as well as to the European Court of Human Rights.
The right of ownership of immovable property is considered as one of the fundamental human rights under the Constitution of Cyprus and as such it is well protected under article 23 of the Constitution. Further protection is given by the Compulsory Acquisition of Property Law No. 15/1962, outlined below.
Non-Cypriots who own property in Cyprus enjoy all the property rights which are available to the citizens of Cyprus and can be assured that their property is absolutely protected.
The Contract Law and the Civil Procedure Law
These laws regulate transactions of all kinds, including those relating to immovable property, and set out the procedures followed by the courts for resolving disputes. They originate in the time when Cyprus was a British colony and are to a large extent modelled on their English counterparts. Although they have been subject to amendment in recent years, they are still similar to the English model.
The Contract Law provides that contracts in respect of immovable property should be made in writing, duly stamped and properly signed and witnessed.
All disputes arising from transactions concerning immovable property are governed by the laws of Cyprus and are subject to the jurisdiction of the courts of Cyprus . The parties, however, may in some circumstances agree to the concurrent jurisdiction of other courts or refer any dispute to arbitration before resorting to court proceedings.
The Stamp Law
The Stamp Law defines the revenue stamps payable on contracts in accordance with the purchase price as follows:
on the first €170,860, the revenue stamp is 1,5 per thousand or part thereof; and
on any excess above €170,860, the revenue stamp is 2 per thousand or part thereof.
The absence of the revenue stamp does not render a contract void but an unstamped contract cannot be used in court proceedings or for the transfer of ownership of property in the Land Registry. An unstamped contract may be used in proceedings or to transfer ownership provided it is properly stamped at the time of such use, in which case a fine is also imposed according to the value and the date of execution of the relevant contract.
The Immovable Property (Tenure, Registration and Valuation) Law
This law was enacted in 1946, replacing the Ottoman Land Law which had prevailed until then. It is considered to be the A to Z of immovable property in Cyprus , dealing with all matters concerning the tenure, registration, disposition and valuation of immovable property within the framework of the Cyprus land registration system, in which immovable property is defined, drawn, recognised, and valued. The Land Registry is unique, in that by its function the history of each piece of land is traced back to the date of the General Survey. Rights in land are defined and secured and all transactions relating to immovable property are protected.
Cyprus is one of only a few countries in the world to maintain such an accurate and effective registration system. Moreover, with the completion of computerisation, it is expected that all the Land Registry services will be upgraded and accelerated.
Section 40 of the Immovable Property Law provides that ownership of immovable property or rights in immovable property can only be acquired by registration at the Land Registry, through the procedure described in the law and that such registration may only be effected by the registered owner of the property. The certificates of registration (title deeds) issued by the Land Registry define the property, secure its ownership and facilitate transactions related to the property.
The Sale of Land (Specific Performance) Law
Under this law a purchaser of immovable property may secure the remedy of specific performance by depositing a duly stamped copy of the contract at the Land Registry within six months from the date of its execution, thus preventing the vendor from transferring the property elsewhere or charging it for as long as the contract is valid and legally effective. Moreover, if the vendor refuses to transfer the property, under certain circumstances the purchaser may apply to the court for an order for the transfer of the property into his name.
The Acquisition of Immovable Property (Aliens) Law
The word “aliens” in this law refers to non-Cypriots, whether EU citizens or third party nationals.
According to this law, non-Cypriots purchasing immovable property in Cyprus, apart from following the general rules which regulate such transactions, are also obliged to adhere to special formalities and are faced with certain restrictions, which are aimed at the proper control of foreign investments and the protection of foreign investors.
The term “foreigner” or “alien” is defined as any person not being a citizen of the Republic of Cyprus and includes a local company controlled by non-residents (international business), a foreign company and a trust in favour of a foreign person. It does not include:
Foreign wives of citizens of the Republic not living apart from their husbands under a decree of a competent court; or
From 1 May 2004, citizens of EU member states permanently residing in Cyprus or EU companies having their main base in Cyprus .
“Trust in favour of a foreign person” means any kind of trust of which the beneficiary or one of the existing beneficiaries is a non-Cypriot and includes any express or implied contract or agreement, written or oral, under which a non-Cypriot will not be the absolute owner but will have ownership for the benefit of another or where ownership will be held on trust for his benefit.
The term “acquisition of immovable property” includes:
The grant or purchase of a lease of property for a period exceeding 33 years;
The acquisition of shares in a company which is duly registered as a legal entity in the Republic or in the British Sovereign Base Areas and which (in either case) has acquired immovable property in the Republic or the Sovereign Base Areas, taking into account that if a majority of shares in the company belong mainly to non-Cypriots, the company is considered as “controlled by non-residents”; and
The formation of a trust in favour of a non-Cypriot which involves, wholly or partly, the leasing of immovable property under the provisions of a lease for a period exceeding 33 years or a shareholding in a company for similar purposes.
Under the Acquisition of Immovable Property (Aliens) Law, a non-Cypriot wishing to acquire immovable property requires the prior permission of the Council of Ministers. Normally permission is routinely granted to bona fide foreigners to acquire a flat or a house or a piece of land not exceeding three donums (about 4000 m 2 ) for the erection of only one house for use as a residence only by the purchaser and his family.
Since 1 May 2009, citizens of other EU member state are entitled to acquire any immovable property in Cyprus in the form of houses, flats, land and building sites or for investment purposes without a licence from the Council of Ministers.
The same applies to legal entities incorporated in another EU member state.
Members of the family of an original purchaser may also acquire their own property, provided that they are completely independent of the purchaser, both financially and residentially, such as married children having their own family and business. Permission is granted for personal use, and not for letting or commercial use. This rule is relaxed for international companies which are permitted to acquire business premises, as well as houses or flats as residences for their members or directors.
British subjects classified as “British Residents” according to Annex T of the Treaty of Establishment of the Republic of Cyprus , may freely trade in land in Cyprus without the permit of the Council of Ministers. This privilege was granted to some British subjects who were residents at the time of the establishment of the Republic of Cyprus ; it is recorded in their passports and it is extended to their spouses and descendants.
Although it may take up to 12 months for the Council of Ministers' permit to be obtained, purchasers are entitled to occupy the property in the meantime.
After the permit has been granted and the property registered in the name of the foreigner, no further restriction is imposed on him and he may sell or dispose of it by will or other instrument. Moreover, the legal heir is not required to obtain a permit in order to have the property registered in his name.
Before entering into a contract for the purchase of immovable property a prospective purchaser should always commission a search at the Land Registry to make sure that the property is free from any encumbrances, charges or burdens. It should be noted that no such burdens may affect the right of specific performance after the contract has been deposited with the Land Registry.
Although it is relatively easy to circumvent the restrictions by acquiring property via a company incorporated in another EU member state, it is equally simple for most third country nationals wishing to acquire immovable property in Cyprus to follow the traditional route of obtaining the permission of the Council of Ministers to acquire property. Permission is normally granted as a matter of routine to bona fide foreigners to acquire a flat or a house or a piece of land not exceeding three donums (about 4,000 square metres) for the erection of only one house for use as a residence only by the buyer and his family.
Transfer of Property
The transfer of immovable property can be effected once permission to acquire has been granted. Transfer fees are payable by the purchaser on the purchase price or, under certain circumstances, on the current market value. The first €85,340 is charged at 3%; the next €85,430 is charged at 5% and any excess above €170,860 is charged at 8%.
Thus the transfer fee on a property priced at €250,000 will be €13,165.60 (85,430@ 3% plus 85,430 @ 5% plus 79,140 @ 8%)
Cypriots and non-Cypriots may obtain loans to purchase immovable property secured by a mortgage on the property.
The Immovable Property (Transfer and Mortgage) Law, No. 9/1965
This law regulates mortgages of immovable property and sales of mortgaged property. It requires mortgages to be registered at the Land Registry.
The Rent Control Law
Property leases in Cyprus are governed by the provisions of the Contract Law, subject to the restrictions introduced by the Rent Control Law to protect tenants against eviction under certain circumstances.
The Rent Control Law does not apply to non-Cypriots renting properties in Cyprus (EU members are treated as Cypriots) .
Leases exceeding 15 years may be registered with the Land Registry and registration should be effected within three months of the signing of the lease. Registered leases afford the lessee certain advantages, including the right to trade the lease.
Non-Cypriots may not take a lease of immovable property for a period exceeding 33 years without the prior permission of the Council of Ministers, and they are not allowed to let their premises to tenants.
For more information please refer to www.neocleous.com