Cyprus: Proposed Amendments In The Cyprus Immovable Property Taxation/Treatment

Last Updated: 9 February 2010
Article by Orestis Livadas

The stable economy and banking system, as well as the minimal reliance on global markets supported and enhanced the standing of Cyprus throughout the downturn. Despite these, the real estate sector was affected among others due to the vast impact the downturn had on the markets of countries such as the UK and Russia. As a result of the aforementioned, the need for an economic reform arose in order to respond to the county's economic needs and minimise the crisis' negative impact.

The economic reform is to be effected in many areas, one of them being the Immovable Property Taxation

Current Legislation

Immovable Property tax is imposed on the Property's market value on an annual basis. The current legislation in force provides for progressive rates ranging from 0% to 0,4% depending on the market value of the Property. However, the market value of the property is not determined according to the current value, but according to the market value as at January 1st, 1980.

More specifically the progressive rates applicable to the Property value as at 01/01/1980 are as follows:

  • Nil rate for property amounting up to €170,860.14;
  • 0,25% for property between €170,860.15 - 427,150.36, amounting to €640.73;
  • 0.35% for property between €427,150.37 – 854,300.72, amounting to €1495.03;
  • 0.40% thereafter.

An exemption from immovable property tax is granted to religious buildings (such as churches, etc) and public cemeteries, schools and public hospitals, property owned by foreign embassies, consulates, or the Republic or that is located in depressed areas, agricultural land used by a farmer for agricultural purposes, buildings owned by charitable organisations or that are under preservation, property under the name of a missing person.

The Proposed amendments

The Cyprus Ministry of Finance has stated the desire to amend the current Legislation on Immovable Property in the beginning of January, 2010. The proposed amendments are targeting to a more fair treatment of immovable property owners, as well as to increase the States income from immovable property taxes by €500 millions annually and achieve minimisation of the public debt and economic development.

The most important proposal relates to the re-evaluation of the Immovable Property market values, and impose taxation on the re-evaluated value of each property (the actual market value). During the last three weeks, this proposal has been a major point of conflict between the government authorities and all the other political parties of opposition.

The main issue raised by the Finance Minister is that it is not right to pay taxes for ownership of property based on the value of the property as it was thirty years ago. Since then the market value of most properties has been multiplied, thus the amount of taxes payable does not represent the amount that should have been payable based on the size of individual wealth. Based on the announcement of the Finance Minister, only 2000 owners of many properties will be affected by the proposed amendments, who are currently unequally favoured by the existing legislation. At a recent statement, the Minister of Internal Affairs has given further clarifications relating to the target of the proposal, emphasising the fact that properties that are currently exempted will continue to be exempted as the taxable value will be amended in line with the property re-evaluation.

On the other hand, even though the opposition party does not necessarily disagree with the mentality of the proposed re-evaluation, an important aspect is being brought forward: since the citizens are currently under enormous economic pressure, it is not wise to impose even more taxes. Furthermore, it is questioned if this proposal is a step towards the desired economic development. It is argued that it would be more helpful to ease the taxpayers even more instead of charging additional taxes to them so that they can invest on their personal development. Based on the opposition's announcements and analysis of the proposal, around 7000 property owners will be affected by the proposed amendments, including people from the medium economic class.

Even though the actual rates have not yet been provided, during the latest meeting between the Minister and key businessmen it was announced that the proposal would be amended so that more people are affected by the changes with less charges.

Furthermore, having in mind that the latest re-evaluation process that determined the 1980 prices had only been completed in 1992, it is questioned whether a new re-evaluation will be completed within the time limit of 12 months as stated.

Other Immovable Property related proposed amendments

Further to the abovementioned proposals, other proposals have been announced by the Ministry of Finance relating to immovable property regulations in an attempt to further achieve the economic reform. These proposals are briefly listed below:

Ownership titles target

Currently, ownership titles are not being issued if any irregularities occur, resulting in more than 100000 titles outstanding. This is a major problem for Cyprus as the islands credibility is challenged by this malfunction. The new proposals introduce provisions concerning the issuance of ownership titles. As proposed, three types of titles shall be issued, categorised by the size of irregularities. The 'clean titles' will be those where there are no inconsistencies, the 'grey titles' will be those with considerably small irregularities, and the 'black titles' will be those with big irregularities. The grey and black titles will be subject to penalties. This proposal is again argued as to whether it's going to make things more efficient or if it is eventually going to create more problems. The possible problems outlined are: conflicts as per the amount of penalty, thus the creation of a penalty list should be issued; and the ability of property owners to pay the penalties, as well as the interpretation of small and big irregularities.

Conclusion

An economic reform is essential in order to overcome the current and future difficulties. The field of Immovable Property taxation as well as the issue of the ownership titles is being selected for amendments not only for governmental income, but because of its social impact. The proposal is reasonable and amendments on this field are necessary for efficiency reasons as well as for a better service to the citizens who are troubled due to the ownership titles. The amendments will be a big step towards increasing the government income deriving from taxes, thus minimising the budget deficit.

On the contrary, having in mind that the unemployment rates in Cyprus are rising as is the poorness percentage, plus the provisions for the year do not show any signs of overcoming the economic crisis, the timing of this proposal is not best suitable for the citizens as a lot of them are currently facing economic problems and might not have the ability to pay additional charges.

The opposing parties have a totally different approach on the subject, and most probably the truth lies somewhere in the middle. If the target of the proposal is focused on owners of large areas, it could be proven to be a very efficient measure towards fair treatment and equitable burden sharing. Otherwise, it would be best if the proposed measures are postponed or modified towards that end.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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