North Cyprus Property Taxes

The purchaser should be aware of the additional costs of taxes when buying a North Cyprus Property.

There are four main taxes involved in any property sale and purchase transaction These taxes are-

1   The Transfer Fee The fee is payable to Land Registry Office and is set at 6%. However, every person has a once in a lifetime option to reduce this to 3%. If a purchaser elects to use this option on the purchase, he or she will only pay 3%. Once this option right has been used, the transfer fee payable on all future purchases by that person will be 6%. So, if a married couple wish to purchase two houses, the first purchased property could be in the name of the husband, and the subsequent purchase in the name of the wife. Each person could avail themselves of the 3% facility.
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2    VAT or KDV This is currently set at 5% and is paid to the Tax Office. It is based on either the assessed value or the sale price. Please note that some vendors require the VAT to be paid on the actual sale value of the property as stated in the Contract of Sale on the date that possession of the property is delivered to the purchaser. You should check the terms of your contract of sale on this point.
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3   Capital Gains Tax

This tax is paid to the Tax Office. It is sometimes paid by the Vendor, but a sales contract may stipulate that it is paid by the purchaser. The rate charged depends on whether the vendor is deemed to be a professional vendor or a private individual . If the vendor is a professional vendor, the rate will be 6.25%. Otherwise, the rate will be 3.5%

4    Stamp Duty

This tax is paid to the Tax Office. The rate is 0.5% of the contract price provided this is paid within 1 month of the date of the contract. If it is not paid within this time, the rate increases in stages until after 6 months it becomes 1.5%. This means that if contracts are exchanged in the UK, then the purchaser should request that his solicitor registers the contract in TRNC within1 month in order to secure the lowest tax rate.

With respect to both Capital Gains and VAT, the status of the Vendor is important. If the Vendor is a private person who is not deemed to be a 'property professional', then VAT would not normally be levied on the transfer. However, if the Vendor is a TRNC property company then VAT will be due. With respect to Capital Gains Tax, if the Vendor is not a 'property professional' the rate is 3.25%, if the vendor is a 'property professional' then the rate is 6.25%. These points have the effect of encouraging some developers / builders to place the ownership of land in the name of their wife, children or 'donkey'. However, the tax authorities are well aware of this ruse and the taxes are becoming more difficult to avoid or mitigate. Also, the fact that land may be held in the name of a third party who is separate from the developer / builder should be a cause for alarm on behalf of the buyer. This is because it is difficult to compel a third party who is separate from the developer / builder to discharge their obligations as per contract, namely, transfer the Title Deeds of the completed property to a purchaser.

In North Cyprus, some estate agents require customers to enter into a Sales Contract with themselves and not the developer / builder. This makes matters worse as it is now possible that the purchaser is contracting with an estate agent and yet he, the estate agent, is not building the property, and in addition, a third party owns the land. This is often a recipe for disaster. Wellington Estates only builds on land which we own, and that land is normally free of any loans or other encumbrances and this is a most important point. All construction workers are directly under our control and there are only two parties named in the Contract of Sale, namely, ourselves and the purchaser.

VAT, Capital Gains and Stamp Duty are normally paid when the customer is issued with Title Deeds. The Vendor is unable to do this until the customer is in possession of a 'Permission to Purchase' certificate, which is issued by the Council of Ministers. The purchaser's solicitor will normally make the application. It often takes up to two years for the certificate to be issued. This means that these taxes, unless they are demanded earlier by the Vendor, will fall due at a future date. Indeed, it is quite normal for the developer / builder to construct a property in say 10 months and for the purchaser to be in residence for over one year before these taxes fall due.

These taxes are based on the value of the property. This can be determined in several ways. Firstly, the value is assessed by the Land Registry when the tax falls due, or they can be based on the declared sales price. Both of these options offer significant opportunities to deflate the notional value of the property, and hence the taxes due.

Worked example
A customer buys a property at £90,000.

On exchange of contracts
The solicitor will request part or all of his fees. This can be up to £1,000. The Stamp Duty is 0.5%, namely, £450.

On issue of Title Deeds
The assessed value is say £60,000. VAT at 5% will be £3,000 and the Transfer Fee is 3%, namely, £1,800. Capital Gains, if payable by the purchaser at 6.25%, will be £3,750.