This guide is written using information on the charging of Immovable Property Tax (IPT) by developers, as supplied to the Cyprus Property Action Group (CPAG) by purchasers of property in Cyprus.
It is also compiled by using information from a legal opinion on IPT and the charging practices of developers by Advocate, Partner and Head of Real Estate and Property Department of one of the largest law firms in Cyprus. The legal opinion was commissioned by CPAG.
The Cyprus Property Action Group strongly recommends that buyers do not pay any IPT demanded from them by developers, until the developer provides evidence of what he paid to the Inland Revenue for that individual site, and additionally, what the individual buyer’s share of this payment is. You may wish to share your experiences with CPAG by registering on their website.
What is Immovable Property Tax (IPT)?
This is a legitimate tax raising methodology based on the ‘1980 value’ of ‘immovable properties’ – i.e. land or land with a building(s) on it.
Comment by CPAG – The Immovable Property Tax law based on 1980 values is to most foreigners a very confusing concept which has no parallel in other EU countries. Relying on this confusion, developers ensnare and contain clients in the Title Deed trap. Fully protected by the legal fraternity, they take the opportunity to abuse the law and not only effectively defraud foreign clients, but even more seriously, do so in the name of the Government.
What should buyers pay?
Buyers should legally only have to pay to the developers the actual amount which was paid on behalf of their properties by the developer before Title Deeds were issued, all of which buyers can reclaim from the Inland Revenue. If the Inland Revenue can work this amount out clearly so can the developers.
The law states that: “The obligation of every owner of immovable property in the Republic of Cyprus is to pay annually a tax according to the market value of his property as assessed on the 1st January 1980, known as immovable property tax (IPT) governed by the Immovable Property Tax Law, No. 24/80 (the Law) as amended by Laws 60/80, 68/80, 25/81, 10/84, 33/87, 239/91, 120/02 and 147/04.“
“If there is no relevant provision in the Sale Agreement, the purchaser may not be liable to pay any such tax, although, even in this case, the developer may claim that the IPT paid by him for the particular property was paid on behalf of the purchaser, who had a legal obligation to pay the same, being the person “entitled to be registered as the owner of the property”. See section 2 of the Law, where “owner” is defined as the person who is also entitled to be registered as the owner, whether he was registered as such or not.“
Once Title Deeds are issued to buyers they will find a 1980 value assigned to their property/Deed. By virtue of their property being less than CYP100,000 (€170,860) at ‘1980 values’ (the great majority of properties are less than this) they can apply for a refund from the Inland Revenue for the whole of any legitimate payment made on their behalf by the developer. Until recently lawyers didn’t tell their clients about the refund as at this stage the client will find that the refund is far less than what they paid to the developer.
Sub section (3) of section 7 of the Immovable Property Law provides:
“…. in the event of the sale of immovable property the purchaser thereof may, upon transfer of the property into his name, claim from the Director of Inland Revenue refund of the immovable property tax paid by the vendor for the particular immovable property.“
What do developers actually pay?
Developers pay IPT on the whole of their portfolio which is made up of their individual lands/sites/properties so they know what they actually pay each year for each site and can easily assign this to individual properties prior to Title Deed transfer.
The following are the latest and previous rates and thresholds for paying the tax – remember these are on assessed 1980 valuations of immovable properties.
From 01/01/90 to 01/01/03 (Law 239/91)
On each pound up to CYP100.000 – zero
On each pound from CYP100.000 – up to CYP250,000: 2‰
On each pound from CYP250.000 – up to CYP500,000: 3‰
On each pound over CYP500.000 – 3.5‰
From 01/01/03 to Present (Law147/04)
On each pound up to CYP100.000 – zero
On each pound from CYP100.001 – up to CYP250.000: 2.5‰
On each pound from CYP250.0001 – up to CYP500,000: 3.5‰
On each pound over CYP500.000 – 4‰
Comment by CPAG – As you can see from the IPT rates they are expressed at e.g. 2.5 per thousand (or 0.25% in real figures !). You can also see that there is a sliding scale. Therefore NO developer pays at a rate of 0.4% on his whole portfolio as most of them falsely claim. Some smaller developers will pay at a lower rate based on the size of their portfolios. Some may pay nothing at all.
A simplified example of what a developer might pay:
For a project of say ten houses the developer starts off with a piece of land bought for CYP250,000 with a 1980 value of CYP25,000 for example. He may be therefore paying IPT of less than CYP100 per annum even he is paying on average near the top possible rate of 0.4‰ (4 per thousand). (25,000 x 0.4% = CYP100)
He should declare, once he starts building, the amount of expense he has put into the land each year. Say he spends CYP500,000 on the site in one year, this additional value will be assigned a1980 value by the Inland Revenue, let’s say they assign a value of CYP50,000, giving a new total 1980 value of CYP75,000 for this site. This works out at an Inland Revenue bill of CYP300 for that year for that whole site.
If he sells the ten houses in year two those properties will each have paid on their behalf to the Inland Revenue CYP30 per annum (CYP300 ÷ 10). However, if he sold them for CYP150,000 each he may (ILLEGALLY) charge the buyers at 50% of the purchase price multiplied by 0.4% which means he would demand CYP300 each – ten times too much in this example! – for the years up to Title separation which could be ten or more years.
Once the Title Deeds are separated for the ten individual houses and ready for transfer they might have say, a 1980 value each of CYP20,000 assigned to them and for that year only IPT would be paid at a total site value of CYP200,000 which would give an IPT tax liability of CYP800 – or CYP80 per property, whereas the developer is charging buyers CYP300 each.
Some developers don’t notify the Tax authorities of the expenses of building work and just pay on the 1980 value of the land, often for years, and therefore denying these rightful tax payments to the public coffers. In this case, at Title Deed separation time, a ‘negotiation’ takes place and back taxes and interest is charged on this non-declaration.
For example, the residents on a site developed by one of the largest developers were receiving annual demands for IPT based illegally on 50% of the purchase price.
On researching the facts with the Land Registry and the Inland Revenue IPT department the residents association discovered that the developer was charging the buyers, on average, 500 times too much!
So as you can see the amount developers can obtain from clients under false pretences can be substantial.
What IPT do developers charge buyers?
Most developers charge at an ILLEGAL rate based on 50% of the purchase price and we have even seen clients charged at 100% of the purchase price. They do this by falsely assuring clients that this is approximately the 1980 value and this is what they have paid on the buyer’s behalf to the Inland Revenue.
Note: this ruse is made possible by the Land Registry keeping the methodology for calculating 1980 values secret. If this methodology was transparent then this fraud by developers simply could not be carried out to the same degree.
To quote from some questions and answers regarding our Legal Opinion:
Supplementary Questions (source: CPAG 30/8/07 and opinion 2/10/07)
Could you please confirm the following:
Whether the rate of 4‰ (4 per thousand) used by Developers is legally correct?
“That the rate of 4‰ used by the Developers is not legally correct. In fact there is no rate but a proportion in the sum paid by the Developer as IPT for the land upon which the purchased property has been erected.”
Whether charging 4‰ on the inflated valuation of 50% of the purchase value per annum as opposed to the 1980 valuations and rates is legal?
“Again it is not legal“
That all monies collected under the guise of IPT by Developers must legally be paid to the Inland Revenue as IPT.
“The developer collects, illegally much more than what he pays to the Inland Revenue (see above) but he has no obligation to pay the difference to the Inland Revenue.“
The average additional amount per property obtained under false pretences by developers prior to issuing Title Deeds appears to be around the CYP1,200 mark from the feedback we have had. We understand that this fraud has been going for around 20 years and thousand upon thousands of foreign buyers have been defrauded in this way. In addition, some developers use the same ruse of 50% of the purchase price to defraud on Sewerage Tax (0.35% of 1980 value) and Local IPT (0.15% of 1980 value).
As an example, recently one buyer was asked to pay over €3,000 in IPT to obtain his Title Deeds by one of the leading developers. The buyer researched the matter with the Land Registry and the Inland Revenue IPT office and was told that his legitimate payment should be less than €100 and that he should not pay any more than this.
In this case the demand was over 30 times too much!
What can buyers do to protect themselves from this fraud?
DO NOT PAY the yearly demands for these illegal charges for IPT!
Some of the larger residents associations have already recommended that their members not pay these illegal demands from their developers unless the developer provides proof of what he has paid on the individual site and shows how he has allocated this to the individual buyers. We are not aware of any buyer who has received this information so far despite hundreds of requests!
To quote from the Legal Opinion:
“the purchaser may ask the developer to provide him with evidence on the IPT he paid for the property (land) upon which the purchased property has been erected and pay the share of this property to the IPT paid for such. In other words the purchaser may refuse to pay more than what he will be entitled to recover from the Inland Revenue, without committing breach of his agreement.“
When it comes to Title Deed issuance and transfer, the developer can only legally demand what he has paid on behalf of a buyer as above. However, the developer refuses to transfer the Title Deed until these illegal amounts being demanded are paid – this is extortion!
It should be noted that this communication is usually conducted via the client’s own lawyer who confirms, or fails to deny, that what the developer is doing is entirely correct (or legal).
It should be further noted that the developer (and lawyer) say that the developer has to charge this illegal amount because he doesn’t know the 1980 value of the property. As we have stated earlier the IPT already actually paid by the developer bears little relevance to the 1980 value of the buyer’s individual property. Moreover, at Title Deed transfer time the developer has already paid all the IPT owing on the site as a condition of obtaining the Title Deed separation so he knows down to the last cent what has been paid and could easily allocate this per property.
In addition, he has a separated Title Deed in his possession with the 1980 value actually denoted on the Deed, and, even if the IPT was charged on this basis, the amount requested would still be too much, but would be appreciably less than the amount of money being extorted by the developer.
So what can buyers do in this particular situation?
At this stage therefore the buyer can ask for a copy of the individual Title Deed (some developers accidentally let buyers see this and still extort the illegal amounts) and can offer to pay on that 1980 value basis. The buyer could separately also visit the Land Registry and complete a N50 search form (with English translation) and find out their 1980 value and confront their lawyer/developer with this. They may also wish to have the Inland Revenue IPT office comment at this stage.
Note however that the Land Registry may very well cover up for the developer (we have hard evidence of this sort of thing).
If the developer/buyer’s own lawyer insists that the inflated and illegal amount must be paid, the buyer should put in writing that he is paying the money under duress as he/she wishes to remove the risk of not having Title Deeds. The buyer should then apply for a refund (by completing an I.R. 314 IPT Claim Form) from the Inland Revenue and work out how much has been overcharged. At this stage, contact CPAG for further advice. By the way, our lawyers have informed us that there is no limit on the numbers of years which can be reclaimed (previously they told us 6 years, based on other limits by the Inland Revenue).
When you obtain the small refund you will notice that the only detail on the small official slip is the word ‘refund’ and the amount being refunded. There is no back up detail such as the amount refunded per year or how this refund has been calculated – yet more cover-up!
If the amount is very significant (we have a widow of 83 being asked for CYP15,000 on a property bought for CYP36,000 some 25 years ago) and the buyer is adamant that they will not pay it, please contact CPAG for further advice and support.
However, we can report that some developers, even the largest, have backed down at this stage; others have refunded monies in a few cases. One of our two largest developers has after many years of charging at 50% of the purchase price recently stated to some buyers that they now have a Retail Price Index which can work out the 1980 value.
Even though these developers have the 1980 value on the separated Title Deed they have still told a client who bought in 2002 that they calculate that his 1980 value to be 37% of the purchase price. The client went to the Land Registry and obtained a copy of the TD himself.
Here are their numbers: House purchased for CYP159,000 in 2002
At 50% of Purchase Price illegal annual payment = CYP318.00
At 37% of Purchase Price illegal annual payment = CYP235.32
At 1980 value of CYP17,500 (still too much !) = CYP70.00
With this developer now using 37% instead of using 50% of the purchase price does this mean that cracks are appearing in the ‘illegal charging alliance’?
In summary, given that most developers and most conveyancing lawyers are involved in this fraudulent activity with tens of millions of Cyprus pounds involved over the years, we at CPAG see this as tantamount to organized crime, indeed verging on criminal conspiracy. The Government was alerted 9 months ago in our CPAG Report, with no response so far. The Chief of Police states that his investigations show that no criminal acts have taken place (!) when he was forced to answer our letter as to why the statements to police made by some buyers were later thrown out. And the secret 1980 valuation methodology remains a secret! Not to mention the absence of any detail whatsoever on the Inland Revenue refund slips.
This scam and the other financial exploitations are only possible due to the unholy situation in Cyprus whereby ownership of properties already paid for is not transferred to the buyer for years. Most developers also use these sites to obtain mortgages and should the developer go bust during this time, buyers could find themselves homeless as the lending institution has first call on the property.
CPAG believes that currently, in allowing some of these practices by developers, the Government is failing to protect property rights of the public as called for by Article 23 of the Constitution and also failing to enforce the law.
Finally, we reiterate that CPAG strongly recommends that buyers DO NOT pay any IPT demanded from them by developers, until the developer provides evidence of what he paid to the Inland Revenue for that individual site, and additionally, what the individual buyer’s share of this payment is. You may wish to share your experiences with us in this regard.
Please also register with CPAG if you think you have been forced to pay too much IPT in the past, stating what you have paid and the name of the developer.
If you have bought a property and are currently being charged Immovable Property Tax by the developer, can you please let us know:
- The amount of Immovable Property Tax you have been asked to pay/have paid.
- Whether or not the developer provided you with an invoice or receipt for the Immovable Property Tax you paid.
- The price you paid for the property.
- The name of the property developer from whom you bought the property.
- Any other detail or information that you feel is relevant.
by registering the above details for our database.
A Guide to Immovable Property Tax and the Fraudulent Practices of Developers by the Cyprus Property Action Group, released October 2008