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Real estate tax restructuring a must

Cyprus real estate taxes are steep, unpredictable and complex and must be reduced and simplified if the island’s property sector is to survive and prosper; owning property must be profitable.

Cyprus real estate tax EACH and every property in Cyprus is taxed three times: at acquisition, while it is being held and on its sale.

It is a well-known fact that in Cyprus, properties are heavily taxed when they are sold or bought and they draw a negative comparison with what is the norm in other European countries.

It is also well known that the holding property tax was considered reasonable to low up to 2011, but when all taxes and levies were taken together Cyprus properties were burdened with average to high taxes when compared to other member states.

Since changes in the property tax were brought about in 2012, (from €12 million in 2011 to €105 million in 2014), taxes increased sharply placing Cyprus at the top of the list among European countries.

Vital

For the real estate sector to survive and prosper, owning a property for own use or as an investment, must be profitable.

Steep, unpredictable and complex taxes that currently exist in Cyprus make it not worthwhile and troublesome to own a property.

A good number of individuals and professional institutions have been suggesting for quite some time now, that property taxation must be simplified and set at a lower level. In addition, the government must offer incentives to boost sales.

Our suggestions are clear:

  • Reduction of the Capital Gains Tax (CGT) from 20% to 10%
  • The base of the evaluated price for CGT to be set taking into account 1/1/2013 values
  • Raise the ceiling for tax exempt amounts for CGT
  • Waive transfer fees if VAT is payable and adopt a set factor at 3% for all other case (instead of 3%, 5%, 8% in force at present)
  • If a property is sold by an owner who goes ahead and buys another property within a six-month period, the Capital Gains Tax should be waived. This would be helpful to owners who want to move to a smaller or bigger property but are hesitant to do so due to heavy taxes.

In principle, levies such as transfer fees or municipal immovable taxes should be in direct relation to the services offered by the state or municipal authorities.

Our suggestion is for every property to have its own, set ownership tax, irrespective of the owner. We also propose the setting of a ceiling both for the immovable property tax and the sewage fees so that the various authorities do not charge at will.

We applaud the government’s decision to incorporate the state and municipal property taxes. We object to the level of taxation which will be at the 2014 levels. This was a once-off cash injection for the state in 2013 and 2014 and should not continue.

Property transfer fees

We also agree with the reduction of transfer fees proposed and hope to see the legislation tabled soon. The Capital Gains Tax should also be lowered to compensate for the higher ownership tax.

Another injustice must be pointed out. Rent incomes are double-taxed. An income tax as well as a defence levy is imposed. Owners should be liable for either the one or the other.

We believe that our politicians mistakenly consider that anyone owning property is well off and must pay a wealth tax. If such a tax is to be introduced it must be done correctly. All assets should be taken into account not just real estate owned. Bank loans should also be an integral part of the equation.

It is vital to make sure that property tax is in no way related to the wealth tax. This would be a huge stumbling block to growth and will force many individuals to sell their properties. This will deal a deadly blow to the real estate sector, one of the main contributors to the government coffers.

Georgos Mouskides
Chairman Cyprus Association of Property Owners (????)
Director FOX Smart Estate Agency

Readers' comments

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  • houlou says:

    @C.H , I agree , Paphos was little more than a village….and is a great shame that it is still so neglected especially the old town with crumbling old buildings and stores …and here we are soon to be European city of culture and ‘they’ were all fighting over who would get their grubby fingers on the EU provided millions, that would supposedly go towards getting the town ready….lets hope its not another repeat of the SAPA saga and the likes of gents like Vergas that take charge….

  • C.H. says:

    Politicians forget the tremendous contribution that retirees made to Cyprus’s economy. Why did people like me bring hundreds of thousands of Sterling each in the 1980’s and 90’s?

    There were advantages to retiring in Cyprus, income tax, property taxes, costs of buildings etc. I personally know people we made very rich and some super rich. Developers, builders, hotels, supermarkets, lawyers, accountants, swimming pool builders, swimming pool chemical suppliers, DIY shops, garden irrigation retailers etc etc. We made Paphos boom. Maybe other towns as well but I am only writing about what I know for sure. None of this would have happened if the current unfavourable tax conditions existed then.

    Despite the money we brought, professional people often acted against our interests. For Cyprus to have a chance to recover from the slow but steady financial decline a lot more than just a few reductions in taxation has to be introduced and very quickly.

  • Peter Howard says:

    Kate – The average fee paid to estate agents in France is 5% and in Portugal and Spain it is between 5 and 10%. In the USA it is also 5% for property and 10% for land. It is only in the UK where fees are much lower, mainly due to the volume of sales for each agent office and less work involved in a sale compared to buyers in another country.

  • @houlou on 2015/07/06 at 12:07 pm – Why not give Mr Mouskides a call – I met him last year in Limassol.

  • houlou says:

    Has Mr Mouskides written to Mr Hasikos regarding deeds….Nigel’s letter said it….there should be set standards on who can buy sell properties….and ultimately no clean deeds then no sale….

  • Kate says:

    I believe Cyprus estate agents should reduce their commission fees on sales. 5% percent is much higher than other EU countries.

  • Peter Davis says:

    In England I moved home on average about every 7 years, as my family increased and my income increased I wanted or needed to live in a better home.

    From a small starter town terrace I ended up in a 4 bed double garage detached. Each time I moved I bought new carpets, new furniture and supported local tradesmen.

    In Cyprus I bought a villa 15 years ago and will never be in a position to afford to move.

    But then many homes in Cyprus are inherited through the family without mortgages.

  • CP says:

    Another tax to add into the above is that of mortgage tax, to be paid when the mortgage is taken out and charged to the property when the encumbrance is lodged at the lands office.

    This is a 4th tax and in itself adds another barrier to the property industry both for domestic but also (and importantly) the overseas buyer.

    Whilst mortgages are almost impossible to obtain as a foreign national at present, this will it is hoped change in time and when it does this tax needs to be reviewed.

  • Brian says:

    Personally speaking I see no good reason for levying capital gains tax on a your sole property. This should apply Europe wide. Buy to let or second properties are different. Everyone has to have somewhere to live. Stifling the property market by preventing people from up or down grading by taxation is unfair to owners. Renters do not have this burden put upon them if they wish to move.

    On the same note estate agents should charge more realistic percentage prices for their services. I suggest that this might naturally happen if the market were more active and people were free of the ridiculously high taxation involved in moving house in Cyprus.

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

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