Buying Property in North Cyprus. A guide to procedures and taxes
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Taxes.
Your solicitor will advise you on taxes payable in respect of your specific transaction and these are broadly as follows.
Transfer Fee. This is payable to the Land Registry Office.
VAT. This is payable either to the Tax Office or to the vendor.
Stamp Duty. This is payable to the Tax Office.
Capital Gains Tax. This is payable to the Tax Office.
Normally the Transfer Fee and Stamp Duty are paid by the purchaser and Capital Gains Tax by the vendor. This arrangement can be varied with the agreement of the parties concerned and supported by a specific clause in the contract.
Apart from the taxes mentioned above there are some different taxes applicable to gifts of property for no consideration and transfers between members of the same family.
Is the transaction subject to VAT ?
The Tax Office will consider the status of the vendor. If the vendor is a professional vendor and is selling the property as part of a commercial business then the transaction will be subject to VAT.
If the vendor is a private seller then the transaction will not be subject to VAT. The vendor in this respect means the person having title to the property. If the seller is only effectively assigning contractual rights to the property to the buyer and the person registered on the title deeds is in fact a professional vendor, then VAT will still be payable.
If the transaction is deemed to be subject to VAT who actually pays the tax will depend upon the Contract of Sale. This should clearly state whether or not the price is inclusive or exclusive of VAT. Taxes are normally paid on transfer of Title.
Transfer Fee.
Changes have taken place from early in 2007 that effect the way that transfer tax is calculated. This was previously based upon an assessed value calculated by the Land Registry before transfer of Title. This based the valuation upon the property at date of assessment, meaning for example, that any new construction on the property would be included in the assessment of value. The Land Registry changed the method in January 2007 in favour of using the contract price as the means of calculating the transfer fee. As of now it is uncertain whether or not the Land Registry will continue with this formula or will revert to the old system.
Capital Gains Tax and VAT.
As with Transfer Fees, Capital Gains Tax and VAT were previously based upon assessed value. This has now changed and the Tax Office will require a copy of the Contract of Sale before transfer of Title. It will calculate any Capital Gains or VAT due based on either contract price or assessed value depending upon which is the higher.
Stamp Duty.
Stamp duty is a tax that was not normally paid on property purchases but since the requirement to produce Contracts of Sale was introduced by the Tax Office, the ruling was made that stamp duty must be paid. The amount is based upon the contract price.
There is some uncertainty as to which value will be used for calculating the taxes due in the future therefore an exact prediction is not possible. Your solicitor will handle these issues and will be able to advise the current Tax Office requirement at time of purchase.
