CAPITAL GAINS TAXES

Capital gains tax (CGT) in Cyprus is relatively straightforward and favorable compared to many other jurisdictions. The tax applies primarily to gains from the sale of immovable property located in Cyprus, while gains from the sale of other assets, such as shares and securities, are generally exempt. Below is a detailed overview of capital gains taxes in Cyprus:

1. Scope of Capital Gains Tax
   Capital gains tax in Cyprus applies to:
   • Gains from the sale of immovable property located in Cyprus.
   • Gains from the sale of shares in companies that directly or indirectly own immovable property in Cyprus (with some exceptions).
     Gains from the sale of other assets, such as shares in companies that do not own Cypriot real estate, movable property, and intellectual property, are exempt from capital gains tax.
     
     
2. Capital Gains Tax Rate
   The capital gains tax rate in Cyprus is 20%. This rate applies to the net gain from the sale of qualifying assets.
   
   
3. Calculation of Capital Gains Tax
   The taxable gain is calculated as follows:
   Taxable Gain = Selling Price – (Purchase Price + Allowable Expenses)
   
   Allowable Expenses
   
   The following costs can be deducted from the selling price to determine the taxable gain:
   • Purchase price of the property.
   • Costs of improvements or additions to the property (e.g., renovations, extensions).
   • Expenses related to the sale (e.g., legal fees, real estate agent fees).
   • Indexation allowance (adjustment for inflation up to December 31, 2016).
     
     
4. Exemptions from Capital Gains Tax
   Certain transactions are exempt from capital gains tax in Cyprus, including:
   • Sale of Shares: Gains from the sale of shares listed on a recognized stock exchange or shares in companies that do not own Cypriot real estate are exempt.
   • Inheritance or Gift**: Transfers of property through inheritance or as a gift are exempt from capital gains tax.
   • Primary Residence: A lifetime exemption of up to €85,430 is available for gains from the sale of a primary residence, provided certain conditions are met.
   • Property Transfers Between Family Members: Transfers of property between spouses, parents, and children are exempt.
     
     
5. Special Cases
   • Sale of Shares in Property-Owning Companies
     Gains from the sale of shares in companies that own immovable property in Cyprus are subject to capital gains tax unless:
     • The company’s assets consist of immovable property used for its business activities (e.g., hotels, offices).
     • The shares are listed on a recognized stock exchange.
   • Property Acquired Before 1980
     • For properties acquired before January 1, 1980, the purchase price is considered to be the market value as of January 1, 1980, for the purpose of calculating capital gains tax.
       
       
6. Payment of Capital Gains Tax
   • The seller must declare the gain and pay the capital gains tax to the Cyprus Tax Department within 60 days of the sale.
   • A Capital Gains Tax Declaration (Form TD 619) must be submitted along with the payment.
     
     
7. Double Taxation Relief
   Cyprus has an extensive network of double taxation treaties with over 65 countries. If capital gains tax is paid in another country on the sale of immovable property located outside Cyprus, the taxpayer may be eligible for relief under the relevant treaty.
   
   
8. Example Calculation
   Suppose you purchased a property in Cyprus for €200,000 and sold it for €300,000. Allowable expenses (e.g., renovation costs, legal fees) amount to €20,000.
   • Taxable Gain = €300,000 – (€200,000 + €20,000) = €80,000
   • Capital Gains Tax = 20% of €80,000 = €16,000