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Reduction in Taxes Payable on Transfer of Title  


The TRNC Government has introduced an option, which is exercisable for a period of three months only (until 31st March 2009), for the land registry transfer fees (usually payable by Purchasers) to be paid at a reduced rate of only 25% of the usual rate. The land registry transfer fee is usually payable at the rate of 6% of the sale price of the property, although everyone has a once in a lifetime option to reduce this to 3%. The Government has now reduced this further so that the rate will be only 0.75% of the sale price. This is a substantial saving for Purchasers. The reduction does not, however, apply to VAT which is 5% of the sale price. The Government has also announced a similar reduction to the capital gains (stopaj) tax which is usually payable by Vendors. This has been reduced from the usual rate of 6.25% to 4.25% for the same limited period of three months. We are currently in the process of contacting all clients who might be able to benefit from this tax reduction. You can only benefit from this if you meet the following criteria: 1. You have received your permission to purchase from the Government. If you require information on this, please contact our designated Purchase Permit Processor, Ozden Buzcu, on ozden@nmplegal.com and 2. Your Vendor is ready to transfer title. Even if you have received your permission to purchase, it might not be possible to carry out transfer of title if the parcelisation process has not yet been completed. Parcelisation is the process by which separate individual title deeds are issued for each plot on the site. The completion of this process is the responsibility of the Vendor. It can be a lengthy process as the application has to pass through a number of public offices. It is usually only completed after all of the construction work is fully completed and the constructions have been inspected by the planning authorities and received their ‘final approval’. Obtaining final approval can take a few months from the completion of the construction work, and parcelisation can then take a few months thereafter. Your Vendor will be tracking the application through the relevant authorities and you may contact your Vendor for an update on progress. This, unfortunately, means that you will not be able to take advantage of the temporary tax benefits which are being offered by the Government. It is not possible for us to pay the taxes now at the reduced rate, the taxes have to be paid on transfer of title. If we receive confirmation from your Vendor before the three month deadline expires that the parcelisation has been completed, we will notify you. We will be contacting the Vendor to discuss whether the Vendor can apply for a ‘partial final approval’ so that the completed constructions can receive their ‘final approval’ without the need to wait for the whole site to be completed and then it may be possible fro the Vendor to transfer a ‘shared title’ to you until the separate individual title deed for your plot is available. A shared title deed is good title – it does not in any way mean that you do not have ownership of your property – it is just that you own a share of the freehold of the whole site, such share corresponding to the area of the site which your property occupies. Once you receive a shared title deed, eventually, when the separate individual title deeds are issued, the separate individual title deed for your plot will be automatically registered in your name. This will not require further taxes to be paid or procedures to be completed. It is not always possible or practical to transfer a shared title. The first problem is the calculation of the share. If your site consists of a large number of properties or if the properties are of varying sizes/types e.g. a mixture of apartments and villas or with different internal areas and numbers of bedrooms, the shares will have to be calculated according to the exact meter square area of the property over the total meter square area of all buildings on the site. Changes cannot subsequently be made so an incorrect calculation resulting in an incorrect share being transferred could cause very severe problems. In addition, once you own a share of the freehold, the Vendor may require a power of attorney from you as he will require your signature as a ‘co-owner’ of the site to complete the parcelisation works and transfer the other shares to the other Purchasers. For these reasons, Vendors usually tend to prefer to wait until all of the formalities concerning final approval and parcelisation are fully completed before transferring title to avoid any such complications. Therefore, this might not be an option which is open to you. We should stress that it is in the Vendor’s best interests to speed up the parcelisation process where possible or to try to consider transferring a shared title as the Government has applied similar tax relief to the taxes payable by the Vendor for the same limited period of three months. However, there will be situations where this simply isn’t possible. Please rest assured that we will explore all possibilities for carrying out transfer of title within the three month deadline to allow you to benefit from the tax relief. However, we cannot be responsible for any delays beyond our control which prevents the transfer taking place before the expiry of the reduced tax rate. Typically, your Contract will include a clause putting an obligation on the Vendor to carry out the parcelisation within a reasonable time or to complete the transfer of title within a certain time period. Failure to do this could constitute a breach of Contract on the part of the Vendor and could entitle you to take litigation against the Vendor. If you are not prepared to accept that it is not possible to carry out transfer of title within the three month deadline given by the Government and wish to take this matter further, your only option will be to consider litigation against the Vendor. Litigation in Cyprus can be a lengthy procedure. This type of case can take up to two years to reach trial. An initial retainer of £1500-GBP - £2000-GBP would be required for us to commence proceedings and the total legal fees would usually equate to 10% of the compensation received, with a minimum figure to be agreed with us. If you opt for litigation, you should bear in mind that the courts in Cyprus do not have the power to order the Vendor to pay his taxes, or transfer title because there is no effective specific performance law. Therefore, what you will receive will be a refund of all monies paid plus damages for the loss and damage which you have suffered as result. Please note that under the terms of our agreement with you our usual conveyancing service includes your legal costs in connection with acting for you in transfer of title. This involves collecting the necessary taxes from you, obtaining the valuation from the Land Registry and passing this to the Vendor for his tax purposes and subsequently attending the Land Registry with the Vendor once he has paid his taxes on the date agreed to effect the transfer. Our original conveyancing fees do not cover any disputes between you and the Vendor regarding transfer and/or parcelisation. If you wish us to enter into any further communication with the Vendor to negotiate on your behalf we will have to charge additional legal costs. If you require any further information about taxes, please download our free Guide to Taxes which is available on the Information and Links page of this website.

Reduction in Inheritance Tax  


A new Inheritance Tax Law is in force. Inheritance tax was reduced to 1% with a threshold of over 20 times the annual minimum wage in force in the year of death. This means that presently estates over around £100,000 will be subject to Inheritance Tax. At 1% on the part over £100,000. Inheritance tax in the UK is payable at 40% on an estate above a threshold of (presently) £312,000. Therefore, investment in Northern Cyprus is highly attractive in terms of estate and succession planning.

Foreigners can now own areas of land up to 5 donum.  


The Acquisition and Long Term Lease of Immovable Property (Aliens) Law came into force late in 2008 which allows (inter alia) foreign purchasers to purchase up to 5 donum of land provided there is only one dwelling on that land. This means there is now no need for foreign purchasers to nominate anyone else or to go to the expense of forming a local company to take title to a property where the garden area is larger than the previous 1 donum maximum area allowed. It should be noted, however, that an application to build further properties on the land at a later date will not be accepted. This law has therefore made larger properties generally situated on land over 1 donum in size more accessible to foreign purchasers. The law also provides the right for a purchaser to apply for a long leasehold title.

Change to VAT Laws  


There have been changes recently to the procedure for the payment of VAT (KDV in Turkish) on the purchase of property in Northern Cyprus. Previously, it was customary for VAT to be paid on transfer of title to the property into the name of the purchaser. However the Tax Office has recently issued a directive to all construction companies stating that VAT must be collected on completion of the construction and delivery of possession of the property to purchaser instead of transfer of title. This directive has been issued relying on a very old VAT law which has rarely been enforced by the Tax Office in the past. In line with this directive, many vendors are therefore now invoicing their clients for VAT, which is currently 5% of the purchase price of the property, on completion of the construction. Many people have criticised this new directive by the Tax Office because they fear that if the VAT is paid by a purchaser to a construction company on completion, the construction company may not account to the Tax Office for it. On transfer of title, the Tax Office requires proof that the VAT has been paid before it will allow transfer of title to take place. If the construction company has not paid this money to the Tax Office, the purchaser may not be able to take title without this being paid. Some pressure groups are lobbying the Government to try to change this practice so that VAT can be paid directly by the purchasers to the Tax Office on completion of the property instead of to the construction company to ensure that there is no risk of the construction company failing to account to the Tax Office for the VAT. However, this is not possible at present. We are currently advising our clients only to pay VAT to the construction company in return for an official invoice (known as a ‘fatura’ in Turkish) from the construction company. This should bear the stamp of the Tax Office on it and should state the amount paid. Once a construction company has issued an official invoice, it must account for that money to the Tax Office. The invoice should be retained by the purchaser or their lawyer to produce to the Tax Office on transfer of title. If payments of VAT are made on possession to a construction company through our client trust account, we will ensure that the invoice is obtained and held on file.