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Proposed Amendments in the Cyprus Immovable Property Taxation/treatment
Cyprus' stable economy and banking system, as well as the minimal reliance on global markets, has supported and enhanced the standing of Cyprus throughout the downturn. Despite this though, the real estate sector has been affected due to the vast impact the downturn has had on the markets in countries such as the UK and Russia. As a result, the need for an economic reform has arisen 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. Taxand Cyprus discuss the details of the proposed amendments and impact on their economy.
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 of 1 January 1980.
More specifically the progressive rates applicable to the Property value since 1 January 1980 have been as follows:
- nil rate for property amounting up to EUR170,860.14
- 0.25% for property between EUR170,860.15 - 427,150.36, amounting to EUR640.73
- 0.35% for property between EUR427,150.37 - 854,300.72, amounting to EUR1495.03
- 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 those that are 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 first quarter of 2010. The proposed amendments are designed to deliver a fairer treatment of immovable property owners. The proposed amendments will also increase the States' income from immovable property taxes by EUR500 million annually and minimise public debt and economic development as a result.
The most important proposal relates to the re-evaluation of the Immovable Property market values, and imposes taxation on the re-evaluated value of each property (the actual market value). During the last two months, 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 the legislation was put in place over thirty years ago. Since then the market value of most properties has 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 this announcement by the Finance Minister, only 2000 owners of many properties will be affected by the proposed amendments, all of whom are currently unfairly favoured by the existing legislation. In a recent statement, the Minister of Internal Affairs gave further clarifications relating to the aim of the proposal, emphasising the fact that properties currently exempt will continue to be exempted and 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 taxpayers' outgoings, so that they can invest on their personal development, instead of charging additional taxes to them. 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 middle economic class.
Even though the actual rates have not yet been provided, in 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, bearing in mind the latest re-evaluation process that determined the 1980 prices was only completely finalised in 1992, it is questionable whether a new re-evaluation will be completed within the stated time limit of 12 months.
Another proposal that has been announced by the Ministry of Finance relating to immovable property regulations is an attempt to achieve further economic reform with the "Ownership titles target".
The new proposal introduces provisions concerning the issuance of ownership titles. Three types of titles shall be issued, and 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 large irregularities. The grey and black titles will be subject to penalties.
Again is argued whether this proposal is going to make things more efficient or if it will eventually create more problems. The possible problems are: conflicts as to the amount of penalty charged, thus a penalty list would need to be issued; the ability of property owners to pay the penalties; as well as the interpretation of small and big irregularities.
An economic reform is essential to overcome both current and future difficulties in Cyprus. The field of Immovable Property taxation as well as the issue of the ownership titles is being selected for amendments not only to obtain governmental income, but to rationalise the impact on society. The proposal is reasonable and amendments in this field are necessary for efficiency reasons. It will pave the way for a better service to the citizens who are concerned by ownership titles. The amendments will be a big step towards increasing government income, which will be derived taxes, and will subsequently minimise the budget deficit.
If the target of the proposal is focused on owners of large pieces of land / property, it could prove 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.
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T. +357 22 699 222