When one decides to sell his own property he must provide a tax clearance from the Income Tax Authorities, in order for the transfer to be effected. In its simplest form the cost of the original purchase is calculated (including transfer fees) plus any improvements/ alterations done to the property (for which receipts are needed to be presented) and on top you add the indexation (basically the cost of living index from the date of acquisition). In most cases you will find that the tax burden of capital gains (20% on the difference) after allowing for the exemptions etc etc is practically next to nothing.

Also if you have secured a loan, the interest charges are added up on the cost, whereas if a sale is effected through a licensed estate agent his fees are also deductible.

One way to reduce the tax burden is to “under declare” the sales price, quite illegal and it is not suggested. Another way is that if you sell the property with equipment and furniture etc these are also deductible from the sales price. Equipment means air conditioning, swimming pool machinery, TV./satellite antennas, irrigation and borehole pumps and any other item which falls under equipment in this sense plus furniture. For this reason and in order to reduce one’s possible disputes with the Authorities is to have included in the sales contract a split up of the sales price, e.g. €200.000 for the property +€20.000 for the furniture, equipment – a short description of what the €20.000 represent we suggest should be O.K.

Unlike transfer fees, where the Lands Office has the final say, whether the sales price represents the market value or not and the fees are imposed on what the Lands Office thinks in his opinion adopt (subject to your right of objection). Capital gain is calculated based on the value which you declare and not what the tax authorities believe you ought to have declared. The Tax Authority must accept your declaration unless there is evidence of fraud (highly unlikely to prove). In case of permanent resident the tax free allowance for own homes is €85.000 (not deducted from the gain but added on the cost mind you). So what is a permanent residency? Up to now we knew that this meant a home which the owner lives in for at least 183 days p.a. Nowadays however a new interpretation from the V.A.T. people come up, by saying that foreign people who live in their own homes while in Cyprus (even for 10 days p.a.) is considered as being a permanent residence. This is of course the V.A.T. interpretation but one could argue that one Governmental department cannot interpret permanent residency in one way and another in a completely different way. This very recent VAT interpretation set in a circular letter is yet to be tested but it is a good tool against the tax people.

So at the end of the day the tax comes next to nothing. Be careful in your dealings with the tax people however. There are various clever lawyers and accountants around (as well as others) who come up with all sorts of imaginative ideas. So, we come across the other day a resale contract for a house for €300.000, including in the sales price amongst others a car with a registration number. During our house inspection we realised that the car was damaged and notwithstanding that it was declared in the equipment list for €7.000, it was not worth even €500. This is clearly a fraud, so don’t do it dear readers believing that the tax authorities will adopt at all times whatever you say. Fraud (such as in this case) is a criminal offence and to do this for what, to save a few hundreds euro – Don’t do it.

Note: See our previous article on Capital Gains Tax allowances set in some detail.

Reminder

• Delayed property tax payments will bear interest at 8%, after due date which is 30th September each year.

• Deposit of your sales contract up to 6 months after signing date in order to act as an impediment on the property and as such cannot subsequently be disposed by the registered owner to third parties, save by the original buyer.

• Purchasing a property (under 275 sq.m), will give you the right to claim the 5% VAT on the 200 sq.m. (Permanent residency rules)

• Transfer fees are reduced to 50% if no VAT is paid and you will pay no transfer fees if you have paid VAT on the property. This incentive of reduced transfer fees is in effect until the 31/12/2012.

www.aloizou.com.cyy

www.aloizou.ro

www.aloizou.ru

ala-HQ@aloizou.com.cy