Guide to Property Taxes in North Cyprus
There are four main taxes involved in any property sale and purchase transaction and these taxes are:
TRANSFER FEE - payable to Land Registry Office
CAPITAL GAINS - payable to the Tax Office
VAT(KDV) - payable to the Tax Office or Vendor
STAMP DUTY - payable to the Tax Office
Please note that different taxes apply to gifts of property for no consideration and transfers of property between family members.
As a general rule, Capital Gains Tax is payable by the Vendor and the Transfer Fee and Stamp Duty are payable by the Purchaser, although this can always be varied by the parties by an express clause in the Contract of Sale.
The payment of VAT depends on two factors:
Whether or not the transaction is subject to VAT
This depends on whether the Vendor is deemed by the Tax Office to be a Professional Vendor (the transaction is of a commercial nature or for profit). If the Vendor is deemed to be a Professional Vendor, the transaction will be subject to VAT. If the Vendor is a private individual, not a Professional Vendor, the transaction will not be subject to VAT.
Vendor in this context means the person who has title to the property, not simply possession/Contractual ownership of the property. So with re-sales for example where the person selling the property does not have title to the property, but is simply assigning his or her Contractual rights in the property to the new Purchaser, the fact that he or she is a private individual not a Professional Vendor is irrelevant. If the person who is registered on the title deeds as the owner is a Professional Vendor, VAT will be payable.
Terms of the Contract of Sale
If the transaction is subject to VAT, who will actually pay the VAT depends on the terms of the Contract of Sale.
Up until recently, the Transfer Fee was generally paid as a percentage of the Assessed Value of the property, which is calculated by the Land Registry just before transfer of title takes place. The Land Registry assesses the property in the state it is in at the date of assessment i.e if there is a new construction on the property, this will be included in the assessment of the value of the property. However, under new regulations, the Land Registry requires sight of the Contract of Sale before transfer of title and will calculate the Transfer Fee on the higher of either the Assessed Value or the Contract Price.
The VATand Capital Gains again used to all be based on the Assessed Value of the property. However, under new regulations, the Tax Office now requires a copy of the Contract of Sale to be presented to it prior to transfer of title. It will then calculate the VAT and Capital Gains Tax based on either the Assessed Value or the Contract value, whichever is the highest.
Stamp Duty is calculated on the contract price.
New regulations since 2nd January 2008 require all Contracts of Sale for the purchase of immovable property in Northern Cyprus to be registered at the District Lands Office within 21 days of being signed and it is now compulsory for the Stamp Duty to be paid at the rate of 0.5% before registration can take place.
Further, in December 2007, the Electricity Board introduced a new regulation under which Purchasers can no longer apply for an electricity meter to be connected to their property unless they can prove that the Stamp Duty on their Contract of Sale has been paid.
The percentages levied for each of the three types of tax are shown below:
TRANSFER FEE- The Transfer Fee is 6%, however, every person has a once in a lifetime option to reduce this to 3%. If a Purchaser elects to use this option on the purchase, he or she will only pay 3%. Once this option right has been used, the Transfer Fee payable on all future purchases by that person will be 6%. On most property purchases, there is also a small local municipality tax, which is 1% of the Transfer Fee amount.
VAT (KDV)- VAT rate is 5%, please note that some Vendors require the VAT to be paid on the date that possession of the property is delivered to the Purchaser. You should check the terms of your Contract of Sale or the Vendors standard terms of sale on this point.
CAPITAL GAINS TAX- Usually paid by the Vendor, the amount payable depends on whether the Vendor is a Professional Vendor or a private individual as defined under the section on VAT above, If the Vendor is a Professional Vendor, the rate will be 6.25%. Otherwise, the rate will be 3.5%
STAMP DUTY- This is 0.5% of the Contract price provided this is paid within one month of the date of the Contract. Although, under the new Legislation this must in fact be paid before the Contract is registered which, therefore, reduces this to 21 days.
The Partners Abroad team are available to answer any questions that you may have about Taxes in Northern Cyprus. Please also see our Frequently Asked Questions about Property Taxes in North Cyprus.
