Background to Taxation Reform in Cyprus
Following the Troika bailout agreement, the Cypriot Government has agreed on a real estate taxation reform. Currently there are 11 different real estate taxes (government fees, duties, etc.) and to make it even more complicated, there are several authorities imposing and collecting these taxes.
Key Issues in Current System
Given this situation following issues arise, which need to be eliminated:
- Real estate owners end up having trouble to either calculate the taxes due and/or find out where and when to pay them;
- The administrative cost for collecting these taxes is huge for the state and consequently for the taxpayer;
- Cyprus’ real estate taxes are much higher compared to other European countries.
The Government has already commissioned consultants to advise them on the above mentioned issues.
Principles of Effective Real Estate Taxation
The characteristics of a sound real estate taxation framework, is summarized as follows:
- The tax system must be as simple as possible, with only a few different taxes;
- Taxation must be low in order to offer profitability to land developers to develop, and landlords to purchase and own property;
- Taxation must be calculable, so that buyers can easily understand the costs involved in buying and maintaining a property.
Details of the Proposed Reform
The proposed reform should include just 3 types of taxes for real estate in Cyprus:
- Tax for property buyers: To be paid by the buyer and should cover the administration cost of the state to implement the purchase of the property;
- Tax for property owners: A holding tax should cover the services’ cost offered to the property by the various authorities.
- Tax for vendors: A sales tax should apply for the gains generated by a specific transaction, payable by the vendor.
It is thought that the above mentioned three taxes should replace the 11 existing taxes, in order to simplify current procedures.
Recommendations from Real Estate Experts
Real estate experts suggest that property owners’ tax, which includes the state property tax, the municipal property tax as well as other existing taxes and fees, should be levied using a uniform flat tax rate for every property.
