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CPAG update on transfer taxes and IPT

Earlier today CPAG, the Cyprus Property Action Group, issued an update regarding transfer taxes (Property Transfer Fees) and IPT (Immovable Property Tax)

Transfer Taxes (Property Transfer Fees)

IT appears that currently an increasing number of the lucky few who are at the point of safety through Title Deed transfer (possibly after many years), are receiving yet more unpleasant surprises, this time courtesy of the Land Registry.

Instead of using the sale price on the contract the Land Registry are randomly coming up with values in excess of the actual amounts paid for properties in order to charge the unfortunate buyers much more transfer tax.

(Just imagine if this concept was applied to VAT or income tax – e.g. ‘You paid too little for that settee you bought in the January sales ten years ago and now we want more VAT from you’!)

Currently, the only way of appealing against these demands is to first pay them and then apply to the Supreme Court to contest the decision, and of course in Cyprus this can take years in the failing justice system.

In late November 2009, CPAG met with the Minister of the Interior and the subject of transfer tax was raised, resulting in the Minister requesting that we write to him. However, despite chasing by CPAG for a response to our letter, no such communication has been forthcoming so far. (Note, we deleted the names of the buyers in this copy in order to protect their privacy.)

Moreover, rumours are rife and many buyers are contacting CPAG for guidance as they are worried that they may not be able to pay these inflated demands, especially if their developer is scamming them on IPT at the same time.

As a result we have prepared a sample letter which may be of help in limiting the current unjust and random practices of the Land Registries where this is taking place. (Note : the addresses for the Land Registries and Ministries can be obtained from the Government portal via our links page.)

We also feel that it is our duty to inform desperate buyers of another practice which is commonplace. Nevertheless in doing this we stress that CPAG can neither recommend nor endorse this approach, in any way.

Namely, we are aware that in some cases where buyers, once they receive their Title Deeds are planning to sell their property, suggestions are made that these first buyers do not in fact transfer the Deeds; but that the first sales contract is simply re-assigned to the second buyers, and that the transfer tax which the original buyers should have paid is shared with the developer, who then transfers Deeds to the second buyers.

Obviously, this deprives the State of some tax, but for years developers have effectively been doing much worse by holding on to Title Deeds and exploiting buyers who wish to sell, through illegal cancellation charges, whilst the State has missed out on transfer taxes which would have accrued from the buyers with the early issuance of Deeds.

Clearly, successive Governments have stood back and allowed this to happen!

Immovable Property Tax and Completion Certificates

CPAG also previously met with the Minister of the Interior in June 2008 and once again were invited to write to him as he pledged to help wherever he could. We subsequently wrote to him on two specific matters and – 16 months later – we have received a less than comprehensive reply.

N50 search/IPT

The first issue concerned a British gentleman and his Greek Cypriot wife attempting to do a search (N50) at the Limassol Land Registry on 5th May 2008 to find out about developer mortgages, 1980 values, etc. The couple could not obtain the results of the search from the Land Registry staff, despite several subsequent visits.  We therefore asked the Minister to intercede, even supplying him with the search number and the receipt number for the €59.78 the couple had to pay.

As of today, 18 months later, they still have not obtained the results of the search they paid for, so clearly the Ministry is either unwilling or unable to intervene in this situation.

By the way, the developer has abused and defrauded the clients on their development, particularly on IPT. For example one gentleman on the same development has checked with the Inland Revenue and was told he should pay €1,954 in IPT whereas the developer is demanding over €17,000! Unfortunately, together with transfer taxes, this buyer cannot therefore now raise the monies to obtain his Title Deeds.

CPAG have previously accompanied buyers from this site to the police in order to report these frauds and attempted frauds and whilst the local police agreed they were indeed crimes and even took statements, the message subsequently came from their superiors that this (fraud and theft!) was not a police matter. We have escalated it to the Chief of Police, and only after intervention by the British Consul, received a reply stating that this was nothing to do with the police. We have provided our rationale as to why this is obtaining monies under false pretences, a criminal offence, yet the police give no counter arguments whatsoever.

We have also previously written to the President to request a review of this situation, who despite the Constitution (and some would say common courtesy) requiring him to respond, he has so far declined to do. We have also contacted GRECO (Group States against Corruption), an EU body, who are responsible for evaluating corruption in EU states.

It should be noted that during the Cyprus evaluation GRECO have been ‘repeatedly told that corruption is not a big problem in Cyprus as there were very few such cases’.

In addition ‘that by by virtue of Section 369 of the Criminal Code, all citizens including public officials, are obliged to report information on (possible) criminal offences to the police’.

With respect to the IPT Offices in the five District Land Registries there are now public officials who are handling more and more IPT reclaims by buyers who have obtained Title Deeds, since buyers have been alerted to this facility by ourselves. Obviously, they can only reclaim the legitimate amount paid by their developers and not the full amounts extorted from them by the developer.

Clearly therefore, not only are all these officials aware of the IPT scam, they even have the hard evidence in the receipts buyers have obtained from their developer and thereby showing the exact amount of the fraud versus the reclaim amount.

Yet the Government does nothing to stop the practice, which, although significantly lessened due to more buyers challenging developers’ false claims, is still taking place.

Nevertheless, the actual response from the Ministry does confirm that by law developers should provide proof of payment of IPT to buyers and you may wish to use this as appropriate with your developers and lawyers.

Completion Certificate

The second issue concerned the Certificate of Final Completion Law and the consumer protection of buyers, the enforcement of which has been completely abandoned by this and previous Governments. At our meeting in 2008 the Minister stated that he could not enforce this (criminal) law because there was no penalty prescribed for breaking it!

We therefore wrote proposing that he should use an ongoing case (brought to court by his own Ministry) to produce a ruling and a suitable penalty.

You will note from the update case study however, that on 10th December 2008 (several months after our letter) the buyers were once again summoned to court and since then a Certificate of Final Completion has been issued and the case dropped.

However, there still appears to be no penalty for breaking this criminal law!

Nevertheless,  the Ministry letter to CPAG confirms that even though they have no plans to enforce this important consumer protection law, the District Officer still has the powers to summons unwitting buyers (on criminal charges) who have been deceived into believing that they have moved into a fully approved and legal property.

With regards to the proposed legislation which initially (and misleadingly) was passed off by the Government to all and sundry as a solution to the Title Deeds problems, we now can see that it is largely an amnesty for developers who have failed to obtain Completion Certificates because of various irregularities.

However, as one part of this new legislation the Government seeks to issue to buyers who bought in good faith, a Title Deed (restricted title – serious irregularities) with such restrictions that may even make the property worthless because of the inability to be able to then sell or mortgage that property.

Also this type of Title will be issued where no Completion Certificate can be issued, making the building illegal and also the buyers presumably still open to criminal prosecution. Leaving the buyers to have to take to the failing Cypriot courts for redress against their developer and lawyer – and most shockingly, with this Government simply off-loading responsibility for a situation created by their own inability or refusal to enforce the law specifically designed to protect these buyers.

We believe this part of the proposed law not only to be unconstitutional – Article 23 gives owners (i.e. with a Title Deed) the right to freely dispose of their property – but, along with others, to be sheer madness for the image of the property industry in Cyprus.

In addition, we have communicated to the Ministry that in our opinion no buyer in their right mind would pay transfer tax to obtain a Title Deed which effectively gave their property the kiss of death!

Readers' comments

Comments on this article are no longer being accepted.

  • cyprusexpat says:

    So long as purchasers pay “under the table” money to sellers, a very common practice, then the Government will of course clamp down on this fraud, and quite rightly so!

    This amounts to open abuse, tax evasion committed by both parties.

    The payment of local property taxes, based on a value 20 years out of date, is very well accepted by people, only because it suits them, so when the Government wants to update the values, then there is uproar.

    To publicise the justly complaints mentioned above, then people must also accept their active part in open tax evasion, also robbing the Government of vital revenue, so it just looks elsewhere for that revenue.

    There are many things not acceptable at the moment, but keeping quiet on these things only keeps people in the dark over the consequences. Buying a house, then insuring it for it’s proper value, will stand out as a sore thumb, so be prepared for a tax investigation on your ability to pay for all this, or not declaring rental income on a property bought for investment.

    Publicise these faults that people are active in, to clean up their act, as the Government is watching!

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