Purchase of Real Estate Property in Cyprus

The interest for purchase of real estate property in the Republic of Cyprus has increased in recent years due to the investment programs introduced by the Republic of Cyprus pursuant to which third country nationals can obtain a permanent residence permit if they invest and/or acquire residential and/or commercial real estate property in the Republic of Cyprus.

With its warm climate year-round, strategic geographical location, favourable corporate and personal income tax and tax incentives combined with an extensive network of double tax treaties, and being a full member of European Union since 2004 with a robust legal system closely aligned with English common law system, are but a few reasons why Cyprus is an ideal choice to purchase real estate either as a residence or as an investment.

Below we describe the steps that need to be taken when acquiring a real estate property in Cyprus. It is recommended that for the purchase of a real estate property in Cyprus, an experienced lawyer should handle and supervise the procedure.

A. Due Diligence Stage

Prior to the acquisition of a real estate property, a due diligence procedure must be performed.

As a first step, the prospective purchaser should ask the seller identification documents (copy of passport or national ID if the owner is a natural person or, in case of a legal person, a full set of recent corporate certificates and the Memorandum and Articles of Association) and official documents in relation to the characteristic and legal status of the real estate property. Such documents should be the Certificate of Registration of Immovable Property (Title Deed) and a recent Immovable Property Search Certificate issued by the Department of Land and Surveys. Such Search Certificate will reveal whether the property has any memos, encumbrances, liens, charges, notes, applications, observations, open files, obligations, mortgages, restrictions, usufructs or rights granted to any third party registered against the property.

In the absence of such Search Certificate, the prospective purchaser can ask the seller for a signed search form from the property owner because a search in the Land Registry can only be done with the permission of the property owner.

If the real estate property to be acquired is a house, apartment or building, the prospective purchaser should ask from the seller to be provided with the following documents and confirmations:

• Documents confirming that all the required building and planning permits for the construction of the property and final approval certificate have been issued by the relevant competent authorities. Such documents include (but are not limited to) the building permit, planning permit, certificate of final approval and the latest architectural plans of the property and technical specifications.
• To confirm that construction of the property has been done in the manner prescribed in the provisions of the building and planning permits and final approval certificate.
• To confirm that the Title Deed matches the property details.
• If there is a mortgage registered against the property due to a bank loan, then waiver from the Bank that registered the mortgaged will need to be provided in order for the property to be released from such mortgage.

If the real estate property to be acquired is land, the prospective purchaser must ensure that the land is suitable for building purposes.

Depending on the information and documentation provided by the seller to the prospective purchaser, further information and documentation can be requested.

It is highly recommended that a prospective purchaser takes into consideration the reputation and legal status of the property developer if the property will be acquired from a property developer.

B. Know-Your-Customer (“KYC”) Procedures of Banks

Prior to the execution of a sale agreement with the seller of the property, it is advised for practical reasons and in order to avoid any potential delays with the transaction for the prospective purchaser to communicate with the bank of the seller and inform the bank about the proposed acquisition and its specifics.

The bank of the seller will then need to apply its internal KYC / due diligence procedures in relation to the prospective purchaser and his/her source of funds (e.g. payslips, tax declarations, financial statements of owned companies and dividends, income from sale of property or rental income etc) and must be satisfied from a documentation and information point of view about the prospective purchaser and his/her source of funds to accepting any incoming funds paid by the prospective purchaser in relation to the potential transaction.

C. Drafting of Sale Agreement and Payment of Stamp Duties

Following the completion of the Due Diligence Stage and the KYC procedures of the seller’s bank, the prospective purchaser and the seller will negotiate the terms and conditions and draft a Sale Agreement that will govern the relationship between them, the manner and timing of payment, transfer of title free of charges and encumbrances of any nature, delivery of possession of property, right to deposit the Sale Agreement with the Land Registry if a specific amount of the purchase price has been paid, defects liability period provided by seller in case the property is newly build (house or apartment) and remedies the purchaser will have if the Sale Agreement has been breached by the seller.

We strongly advise for a prospective purchaser to engage the services of a lawyer for the drafting and review of a Sale Agreement, so that all rights of the prospective purchaser can be preserved and his/her wishes will be clearly defined in the Sale Agreement.

Upon the execution of the Sale Agreement and pursuant to its terms, the purchaser must have the Sale Agreement stamped by the Tax Department and pay the applicable stamp duties to the Inland Revenue Department within thirty (30) days of its execution, otherwise penalty will be imposed over the respective amount. The stamp duties are calculated on the basis of the sale price as follows:

• 0% for the first € 5,000.00;
• 0.15% from € 5,001 to € 170,000; and
• 0.20% from € 170,000 and above (capped at a maximum of € 20,000)

D. Deposit of Sale Agreement with Land Registry; Specific Performance

Typically, once the Sale Agreement is executed, legalized and the stamp duties have been paid and a particular amount of the purchase price has been paid by the purchaser to the seller, the purchaser has the option to deposit a certified copy of the Sale Agreement with the Land Registry within six (6) months of its execution that will act as a charge/encumbrance against the property for specific performance purposes so that the transfer of the acquired property to the name of the purchaser can be secured.

The Specific Performance Law of Cyprus protects the purchaser in such transactions especially when the purchaser cannot immediately transfer the property to his/her name even if a particular amount of the purchase price stipulated in the Sale Agreement has been paid. Such deposit entitles the purchaser to seek “specific performance” and of the terms and conditions of the Sale Agreement and register the property unto the purchaser’s name. It is important to note that failure to deposit the Sale Agreement with the Land Registry within six (6) months of its execution, the purchaser will need to obtain a court order in order to extend the timeframe for such deposit past the six (6) months period.

E. Permit for Purchase of Property by the Council of Ministers

Citizens of the Republic of Cyprus and European Union citizens are allowed to purchase any residential and/or commercial real estate property in the Republic of Cyprus with no restrictions or limitations. European Union citizens are treated as locals and can register in their name as many properties as they wish.

For non-European Union citizens, they must first apply to obtain a permission / approval by the Council of Ministers before the transfer of the property in the name of the third country national purchaser can be made. Such application is made after the Sales Agreement has been executed and the permission / approval by the Council of Ministers will be obtained after an application that is accompanied with personal and financial information of the purchaser is submitted to the Local District Officer.

F. Transfer of the Property and Delivery of Possession

Prior to the transfer of the property taking place, the seller must obtain Tax Clearance Certificate from the Tax Department through the N. 313 for by providing payment receipts of all outstanding taxes and fees applicable to the property in order for the Land Registry to allow the completion of the transfer, as per below:

• Capital Gains Tax
• Sewerage Board Tax
• Municipality Tax
• Local Authority Fees
• Water Board

In order for the property to be transferred, an application for transfer is to be filed by the seller before the District Land Registry Office of the district where the property is located. On the date the District Land Registry Office will designate, the transfer process will commence at the District Land Registry Office of the district where the property is situated and both the purchaser and seller (or their authorized attorneys) will need to be present in order to execute the relevant transfer documents before the officers of the District Land Registry Office. Following the provision of the Tax Clearance Certificate and the Sale Agreement to the officers of the District Land Registry Office, the officers will estimate the market value of the property at the time of the execution of the Sale Agreement to determine the transfer fees. The transfer fees are calculated as follows:

• 3% on the € 0 – € 85,000 of the value of the property;
• 5% on the € 85,001 to € 170,000 of the value of the property; and
• 8% from € 170,000 and above (capped at a maximum of € 20,000)

Under certain exceptions provided by the Law (such as the transfer relates to a transaction that is subject to VAT), then there is a total exemption from transfer fees. In case a transaction is not subject to VAT, the legislation provides an exemption of 50% on the amount of transfer fees.

At this stage, the responsibility of the purchaser is to proceed with the payment of the transfer fees and to pay the last remaining amount of the purchase price of the property. If the Land Registry is satisfied with all of the above, the title of property is transferred and registered in the name of the purchaser.

The Title Deed showing the purchaser as the new registered owner of the property is normally issued within one (1) month from the date the transfer process is completed before the District Land Registry.

Our Legal Services

Paris Mavronichis & Co LLC can assist you in every step of the procedure:

• Due diligence on seller and due diligence of desired real estate property
• Drafting, reviewing and negotiating the Sale Agreement for residential and/or commercial real estate properties
• Real Estate property valuations
• Real estate investment analysis and advice
• Provision of advice on the purchase of property in the Republic of Cyprus by Cypriots, European Union citizens and third country nationals
• Advise on tax consequences involved in commercial or residential property transactions
• Application for permission / approval from the District Officer to purchase property in Cyprus by non-European Union citizens
• Land Registry Office transfers
• Provision of advice on financing matters in relation to the acquisition of the real estate property
• Provision of advice on town planning and zoning rules
• Estate planning and administration
• Wills, probate and re-sealing

Please feel free to contact us if you have any question and to discuss how we can be of assistance to you.

DISCLAIMER:

PARIS MAVRONICHIS & CO LLC accept no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

The material contained herein is provided for informational purposes only and does not constitute legal advice nor is it a substitute for obtaining legal advice from an advocate.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced advocate. PARIS MAVRONICHIS & CO LLC will be glad to assist you in this respect.