How to begin the process of purchasing? How long it's going to take? Is there any chance to get a tax relief? The secrets to a successful real estate deal in Cyprus in our article.
Step 1. Open a bank account and reserve the property
Opening a bank account
All serious payments in Cyprus are made via bank transfer. That’s why after choosing a property to buy you have to open up a bank account to pay a seller. For that you will need only your foreign passport or ID. Here are some Cypriot banks that work with foreigners: Bank Of Cyprus, Laiki Bank, Hellenic Bank and Alpha Bank. You need a euro account. The minimum deposit on a bank account in Cyprus is €10.
Making a deposit
After finally making a decision about choosing the real estate of your dreams you need to reserve it. The first step to do so is to make a preliminary agreement and a deposit. It is usually 1-2% of the property cost. It is a non-refundable payment in case if later on you decide to back out of the deal. But if the deal is disrupted due to the seller's fault, your deposit is refunded in full.
The preliminary agreement must be signed in the presence of a lawyer. Therefore you need to conclude an agreement a legal support of the deal with a Cypriot lawyer at the same time. Also, if you are not going to be present at all stages of the selling deal, you have to issue a general power of attorney for your lawyer, which must be certified by an invited independent notary in the presence of the buyer (that’s you). With this power of attorney the lawyer will be able to fully conduct the entire process on behalf of yours, including signing the contract and registering the property. And you can safely leave, if you need to.
The typical period of reservation is 1-1.5 months. During this time the lawyer checks the documents for real estate, controls that the seller's lawyer has issued a release of real estate from liens and encumbrances (if there are any). At the same time the buyer’s lawyer issues a certificate of no debts (tax clearance), prepares a sale contract, coordinates it between both parties and finalizes the deal.
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Both the seller and the buyer can attend the conclusion in a company of their lawyers or authorized representatives (if they have a power of attorney, of course).
The sale contract can be signed in the presence of a notary in Cyprus or at the representative office of a Cyprus company in your country. The contract is signed in two copies and must be executed in all respects.
Note! The legal system of Cyprus is based on the British one. According to an officially accepted standard the sale contract for real estate is drawn up in English. However, a copy in another language can be prepared and notarized by the buyer’s request in addition to the English one.
The contract must contain a clear description of the property as well as the procedure of the payment transaction. About 30% of the cost of the property is usually paid during the contract signature. You also must pay a state fee, which is a stamp duty for legalizing the deal.
Step 3. Final settlement
After transferring 30% of the property’s value to the seller, you have to apply for permission from the Council of Ministers of Cyprus to purchase real estate and approval for VAT relief. Then you transfer the remaining amount, minus the deposit, or according to a pre-agreed schedule. In case of violation of the payment schedule, penalties are provided.
On June 8, 2012, the law of the Republic of Cyprus No. 73(1)/2012 entered into force, amending the law on Tax on Added Value (VAT law) of 2000. According to the amendments, real estate buyers from the Republic of Cyprus, the EU and other countries are entitled to a preferential VAT rate of 5% instead of the current rate of 19%.
How to get a VAT refund in Cyprus
The preferential VAT rate is provided if the following requirements are met:
The applicant must be an individual (not a legal entity).
The applicant (a real estate buyer) must be at least 18 years of age.
The property must be the main place of accomodation of the applicant in the Republic of Cyprus. In this context a property refers to both a house and an apartment, as well as cases when the buyer builds a house.
The applicant must not have any other properties in Cyprus that were purchased earlier with a preferential VAT rate.
The property must be used exclusively as residential property, and the applicant must be the first to actual owner of the property since the end of construction.
The law applies to real estate that does not exceed 200 sq.m. If the total area is larger, the lower VAT rate cannot be applied.
Since 2012 foreign buyers of real estate in Cyprus can legally apply for a tax break.
List of documents for obtaining a preferential VAT rate
To apply for a VAT relief you must submit the following documents to the VAT Department of the Ministry of Finance of the Republic of Cyprus. Here they are:
A declaration stating that you have not bought any other real estate in Cyprus using the preferential VAT rate.
The sale contract.
Architectural plans for real estate.
A marriage certificate, if you are married.
A copy of your passport or ID.
A copy of the spouse's passport, if you are married.
A certified copy of the construction permit.
A declaration signed by an architect or a civil engineer confirming the corresponding size of the property.
A proof that you use your property as the real place of accomodation in Cyprus: utility bills, tax receipts, etc.
You must submit these documents within 6 months from the moment of transfer of title.
Also, if you are married, your spouse must submit a declaration stating that they do not own any property in Cyprus.
If you are approved by the authorities for a VAT relief, try not to refuses to use the property earlier than 10 years from the date of establishing ownership. Otherwise you must notify the VAT Department of the Ministry of Finance within 30 days of your decision and pay the difference between the preferential and standard VAT rate existing at the time of conclusion of the contract.
The procedure of VAT refund
First you have to pay VAT at the standard rate applicable at the time of conclusion of the contract and indicated in the sale contract. Since January 1, 2014, the tax rate is 19%.
Then, you sign the declaration and submit an application to the relevant state department as it is described above.
Finally, when the VAT Department confirms the validity of granting the benefit to you, VAT is recalculated at a preferential rate of 5%.
When the contract becomes effective, you as a foreign buyer or rather your lawyer must submit a copy of your passport or ID and a written conclusion of approval of the purchase to the Council of Ministers. You also have to pay a property stamp duty to the Department of internal taxes.
The lawyer must register the sale contract in the District Land Registry Office within 60 days from the conclusion. This ensures the security of the property rights of the foreign buyer.
Registration secures your legal rights to the property and guarantees protection against resale, purchase, lease or mortgage of the property without your knowledge until an individual certificate of ownership of the property is obtained.
The final permission of the Cabinet of Ministers for the purchase of real estate is obtained after you pay the entire price to the seller according to the contract. For the final transfer of ownership to a foreigner, the following documents are required:
application to the regional land chamber;
the registration fee receipt;
the tax on registration of property receipt.
Both the buyer and the seller must be personally present during the transfer of ownership. The Land Commission registers the transfer. It usually takes about a week. and takes about. But as a buyer you already have the right to use the purchased property even before that. Ownership of the land plot on which the property is located also must be registered.
You cannot get the title deed immediately. The discharge procedure may take up to 10 years. Many properties do not have a title deed at all, but they do have a title number, which is proof that the necessary documentation has been accepted by the land registry for further title issuance.
Can I seal the deal remotely?
If the buyer cannot attend the deal in person, a lawyer can represent their interests. It is necessary to issue a general power of attorney, certified by an invited independent notary in the presence of the buyer beforehand. In this case, the lawyer will be able to conduct the entire process on behalf of the buyer, including signing the contract and registering the property.
