Capital Gains Tax in Cyprus
Capital Gains Tax (CGT) in Cyprus is a tax levied on the profit from selling real estate – the gain (profit) that is taxed and not the whole received amount. Capital gain is calculated from the increase in value of the sale price as compared to the value of the property on 1 January 1980 or the cost as adjusted for inflation if the date of acquisition is later.
Additions and expenditures on the property may also be deducted. In Cyprus, CGT has to be paid at the time of the disposal of the property.
The difference between long- and short-term capital gains tax only applies in Cyprus if we take this to mean the original price of the property on 1 January 1980 or as adjusted for inflation.
Property on which CGT is paid in Cyprus means:
- immovable property in the Republic,
- shares in companies that own immovable property in the Republic,
- shares in companies that participate in a company or companies that own immovable property in the Republic (upon conditions),
- agreements to sell property in the Republic.
Read more about other property taxes in Cyprus.
How much is capital gains tax?
Capital gains tax in Cyprus is 20% unless your case falls within the exemptions or allowances.
Exceptions
Exceptions to the duty to pay CGT include, among others:
- transfer on death,
- gifts between spouses, parents, children and relatives up to the third degree of kindred,
- gifts from foster parent to foster child,
- gifts to a charitable organisation, the Republic, or a local authority.
Allowances
Individuals are entitled to the following lifetime allowances to reduce their taxable gain. These allowances are cumulative, but the total amount claimed cannot exceed €85,430:
- A lifetime allowance of €17,086 is available on the taxable gain from the sale of any property.
- A lifetime allowance of €85,430 is available on the taxable gain from the sale of a primary residence. To qualify, the owner must have lived in the property continuously for at least five years before the sale.
- No CGT is imposed on a natural person whose profit does not exceed €25,629 for profit arising from selling agricultural land for people whose profession is agriculture.
If the land exceeds 1.5 hectares, the CGT is paid on the price of the land exceeding 1.5 hectares.
CGT calculation example
An individual sells their primary residence, which they have lived in for 10 years, for €400,000. The indexed purchase cost was €250,000.
- Capital gain: €400,000 - €250,000 = €150,000
- Applicable lifetime allowance: €85,430
- Taxable gain: €150,000 - €85,430 = €64,570
- CGT due: €64,570 * 20% = €12,914
How inflation adjustment works
When calculating Capital Gains Tax, the "cost as adjusted for inflation" refers to increasing the original purchase price of the property to reflect its value at the time of sale. This is done using the official Consumer Price Index (CPI) published by the government of Cyprus.
Tax authorities use the CPI from the month of acquisition and the month preceding the sale to determine the correct value.
This way, sellers are taxed only on the real increase in the property's value, not on gains that result from general inflation over time.
Relevant legislation
The relevant legislation for CGT in Cyprus is the Capital Gains Tax Law 52/1980, latest amendment N. 197(I)/2022.
Importance
CGT is an important consideration when setting a sale price and estimating the net proceeds from a sale. It is also a factor that can affect the return on investment for real estate investors.
Capital Gains Tax also affects legal compliance. Accurate calculation is necessary to avoid penalties and legal implications. Aiding someone in avoiding CGT is a criminal offence.
FAQs
Disclaimer
The information provided is for general guidance only and does not constitute professional tax or legal advice. Tax laws are subject to change and depend on individual circumstances. Please consult a qualified professional for advice customised to your specific situation.
