Capital Gains Tax
Capital Gains Tax (CGT)
The rate of CGT is 20% on profits acquired from the sale of immovable property located in Cyprus, after provision for an increase indexation payment. The capital gains acquired from the sale of immovable property located outside Cyprus are free from CGT.
Taxable Gains Explained
The taxable gain is a calculated difference between the sale price and the original cost of the immovable property plus refurbishment cost after purchase. The total price of the immovable property must be adjusted to include the increase from the date of purchase which took place not earlier than 01 January 1980, up to the date of disposal. This increase can be estimated via Cyprus consumer price index.
Selling price of an immovable property (on 30/01/2009) – €450,000
Less the cost of acquisition (on 01/01/2000) – €250,000
Less inflation (01/01/2000-30/01/2009) – €250,000 x 206.97 / 165.52 = €312,605
Taxable profit – €450,000 – €312,606 = €137,394
Capital Gain Exceptions
Individuals are entitled to exemptions from the CGT; however, the exemptions are only permitted once.
The first exemption of €17.086 occurs if the gains are obtained from disposal of any property. Using the above-mentioned example, the tax to be paid can be calculated as follows:
Taxable profit €137,394 – €17.086 = 120,308*20% = €24,062
N.B. If owners of the immovable property are a married couple, then the tax exemption will be €17.086 * 2 = €34.172.
The second exemption of €85.430 occurs if the gains are obtained from disposal of primary residence. The second exemption applies only if the property in question was owned and used as individual’(s) primary residence for a period of at least five years. Taking this into consideration, the calculation of CGT changes as follows:
Taxable profit €137,394 – €85.430 = €51,964 * 20% = €10,392.8
The third exemption relates to the agricultural land sold by the farmers and sums up to €25.629.
Gifts and/or donations between relatives. The relation between relatives must be up to third degree:
- Parents to children (no tax)
- Between spouses (0.1% on the fair market value (FMV))
- Between third degree relatives (0.1% on the FMV)
- To a trustee (€50)
– Donations made to support charitable organisations and the Government.
– Land sale exchange in compliance with Agricultural Law.
Property exchange. The gain produced through the exchange is used to purchase another property. The gain in question is then deducted from the cost of the new property and is non-taxable.
Gifts made to family companies. (N.B. The following exempt applies only if the shareholder(s) of the company is and persists to be a member of the giver’s family for a minimum of five years.
Gifts made by family companies to the companies’ shareholder(s), taking into consideration that the property was initially acquired by way of a gift. Moreover, if the shareholder(s) disposes of the company’s property in the following three years from the gift date, the exemption will not be valid.
Transfer for the purpose of organisation.