Sunday, May 18, 2003 :

 

Cyprus provides the perfect climate for investment

By Diarmaid Condon The Sunday Business Post

Cyprus is a spectacularly beautiful island in the Mediterranean.

With year round sunshine, friendly people and a cost of living almost 50 per cent lower than Ireland, it is now gearing itself up to become a property investment hotspot.

The largest island in the eastern Mediterranean, Cyprus boasts diverse scenery and lush vegetation, from subtropical coastal plains to rich pine forests. Its mild climate is one of the healthiest in the world, with 340 days of bright sunshine a year and temperatures ranging from 16 degrees in January to 33 degrees in August.

Cyprus can offer its residents low costs yet a high standard of living, low taxation rates, offshore investment opportunities, excellent educational and medical facilities, a practically non-existent crime rate and, most importantly, no language barrier, as English is widely spoken.

With two international airports operating daily scheduled and charter flights to worldwide destinations, getting there could not be easier.

All of these factors have combined to make Cyprus one of the most attractive locations in Europe in which to live and work.

The principal reason for recent interest in the country is the Cypriot government's recent change in attitude towards owning a business on the island. With EU membership pending, the country is relaxing its laws relating to EU nationals setting up and running their own businesses.

Once only suitable for retired people or those financially comfortable, the opportunity to wholly own and run a business opens up the market to a far greater number, and this will have a positive effect on the local property market.

There are a number of financial advantages, including the fact that capital can be brought in tax-free, there is no estate duty on your property in Cyprus when you die, nor is there duty on any property you own elsewhere where you have been a resident.

By buying a property and becoming an official resident - in other words living permanently in Cyprus for at least six months and one day - you enjoy the benefits of being a tax resident.

If you choose to be taxed as a resident of Cyprus, pension and investment income that you bring to Cyprus will be taxed at just 5 per cent, making it a very efficient tax haven economy.

The country also has a full double taxation treaty with Ireland, so tax paid in one jurisdiction will be allowed in the other.

Driving is on the left, and many regulations are based on a governmental system with which the Irish are familiar.
As a non-Cypriot you are entitled to freehold ownership of one property - a villa, apartment or a piece of land up to 4,012 square metres. If you are of Cypriot origin there are no restrictions.

Buying a property in Cyprus is not very different from Ireland. You make an offer and if it is accepted it is normal to give a nominal deposit of around €3,000 to reserve the property. Unlike Ireland, this deposit is legally binding in Cyprus, so no gazumping is possible.

Contracts are drawn up within a few days, and upon signing it the buyer must pay between 20 and 30 per cent of the value of the property. The remaining sum is paid according to terms agreed with the seller, if any.

The contract, once signed and stamped, must be deposited at the land registry office within two months. This is a safety measure, blocking the property and not allowing the seller to re-sell it to anyone, safeguarding the buyer until the Council of Ministers application has been made and approved.

Having signed a contract of sale for your property as a routine procedure, it is necessary to make an application to the Council of Ministers to grant approval for a non-Cypriot to acquire immovable property.

This is a simple process requiring a bank reference, character reference and issues such as criminal records, confirmation that the land size is within the required limits, that only one home is owned in Cyprus and that the buyer has the minimum funds required to live in Cyprus.

The whole procedure can take up to 12 months, but in the meantime there is no restriction on taking up possession of your property.

Should approval not be granted, you can reapply, or have 17 years in which to sell your house. You can live in your house from the moment you buy it, prior to the Council of Ministers' granted approval, and you can re-sell your property during this time. This does not affect inheritance rights. No Irish citizen has ever been refused approval.

It is advisable to have a solicitor's advice for the purchase of your property. The solicitor's duty is to carry out the necessary searches on the property, check the contracts (draw them up in some cases), and make the Council of Ministers application.

By law, in Cyprus all registered estate agents must do searches on their properties and must inform clients on any legal encumbrances, memos, mortgages or problems related to the property.

When the time comes to sell on, you can immediately repatriate all proceeds that were paid for in properly imported foreign currency.

The solicitor's fees are usually in the region of €1,000, which includes search fees. The purchaser is also liable for property transfer tax and stamp duty.

Property transfer tax is due when the property is registered in your name at the Land Registry office.

This process is carried out after the Council of Ministers' approval, is a once-off tax and is calculated on a sliding scale of between 3 and 8 per cent.

Should the property be bought by a couple, the rate is shared by the couple, effectively doubling the bands. The registered owner of the property is liable for annual immovable property tax based on the value of the property, again on a sliding scale.

Capital gains tax is levied at 20 per cent on gains arising from the disposal of property - however, for foreign-owned property, generous allowances and exemptions exist.

As the gain takes inflation into account, the actual appreciation coupled with the allowances and exemptions usually leaves little for taxation.

The purchaser is liable for payment of stamp duty at the rate of around €2.50 per €1,000 up to the value of €171,000, and thereafter at the rate of €3.40 per €1,000. This should be paid within 30 days of signing the contract. There is a mortgage registration fee of 1 per cent of the amount secured, plus any relevant stamps.

One item to note is that there are no non-status/self certification mortgage facilities available in Cyprus (although renting out your property is permitted), so all loans taken in the country need to be supported by a minimum requirement of proof of income.