There are four main taxes that apply to any property purchase or sale: These taxes are 1 The Transfer Fee (Devir Harçları), which is payable to the Land Registry 2 The Capital Gains Tax (Stopaj), which is payable to the Tax Office 3 The VAT (KDV), which is payable to the Tax Office or to the seller 4 The Stamp Duty (Pul Parası), which is payable to the Tax Office NB: Different taxes apply to gratuitous gifts of real estate between family members. Generally, capital gains tax is payable by the seller and transfer duty and stamp duty by the buyer, although this can be changed by the parties at any time by an express clause in the contract of sale. The rates of tax that apply are those in force at the time of the transfer of ownership. However, the current rates are set out in this guide. The payment of
VAT depends on two factors:
On whether or not the transaction is covered by VAT. This depends on whether the seller is classed as a ‘professional seller’ by the Inland Revenue (i.e. whether the transaction is commercial in nature or profit-making). If the seller is classified as a professional seller, the transaction is subject to VAT. If the seller is an individual and not a professional seller, the transaction is not subject to VAT. ‘Seller’ in this context means the person who owns the property, not just the possession/contractual ownership of the property. For example, in resales where the person selling the property does not have ownership of the property but merely assigns their contractual rights in the property to the new buyer, the fact that the person is a private individual and not a professional seller is irrelevant. If the person recorded as the owner in the title deeds is a professional seller, VAT will apply.
Terms of the purchase agreement. If the transaction is subject to VAT, who actually pays the VAT will depend on the terms of the sale and purchase agreement. In the past, the transfer fee was usually paid as a percentage of the appraised value of the property, which is calculated by the Land Registry just before the transfer of ownership. The Land Registry values the property in the condition it is in at the time of valuation, i.e. if there is any new build on the property, this is included in the valuation of the value of the property. However, under the new regulations, the Land
Registry will require the purchase contract to be inspected before the property is transferred and will calculate the transfer fee based on the higher of either the assessed value or the contract price. The VAT and capital gains tax were also based on the appraised value of the property. However, under the new rules, the IRS now requires that a copy of the sales contract be provided prior to the transfer of ownership. The Inland Revenue will then calculate VAT and capital gains tax based on either the estimated value or the contract value, whichever is higher.
Stamp duty Stamp duty is calculated on the contract price. New regulations since 2 January 2008 require that all contracts of sale for the purchase of real estate in Northern Cyprus must be registered with the District Land Registry within 21 (twenty-one) days of their signing and that stamp duty at the rate of 0.5% must be paid before registration can take place.
In addition, in December 2007, the Electricity Authority introduced a new scheme whereby purchasers can only apply to have an electricity meter connected to their property if they can prove that stamp duty has been paid on the contract of sale.
The percentages charged for each of the three types of tax are shown below:
TRANSFER FEE FEE – The transfer fee is 6%. However, each person has the option once in their lifetime to reduce this fee to 3% for a property up to 1 donum in size. If a buyer uses this option at the time of purchase, they will only pay 3%. If the plot is larger than 1 donum, the 3% option can be used for the first donum and a 6% transfer fee is payable for the rest of the plot. Once the 3% option is used, the transfer fee for all further purchases by that person is 6%. Most property purchases also incur a small council tax charge which is 1% of the transfer fee.
VAT FOR PROPERTY TRANSACTIONS – 5%. VAT is usually paid by the buyer to the seller on the day the property is transferred to the buyer in return for an official invoice VAT (called ‘fatura’ in Turkish), which is then presented to the tax office as proof of payment VAT when the property is transferred. Information on whether or not VAT applies to your purchase can be found above.
VAT FOR PROPERTY TRANSACTIONS – 5%. VAT is usually paid by the buyer to the seller on the day the property is handed over to the buyer in return for an official invoice VAT (called ‘fatura’ in Turkish), which is then presented to the tax office as proof of payment VAT when the property is transferred. Information on whether or not VAT applies to your purchase can be found above.
CAPITAL GAINS TAX – As mentioned above, this is normally paid by the seller. The amount payable will depend on whether the seller is a professional seller or an individual, as defined in the section above on VAT. If the seller is a professional seller, the rate is 4.7% (with 4% payable by the seller on transfer of ownership and the balance of 0.7% payable by the seller with their annual statement). If the seller is an individual, the rate is 2.8% unless they exercise their one-time tax exemption (see details below).
STAMP DUTY – This fee is 0.5% of the contract price, provided it is paid within one month of signing the contract. However, under the new legislation, this fee must be paid before the contract is registered, reducing the period to 21 days.