Main taxes in Northern Cyprus
Tax on individual income
Tax on property
Conclusion
In 1974, the scenic isle of Cyprus in the Mediterranean Sea was split into two states: the Republic of Cyprus and the Turkish Republic of Northern Cyprus. Independence of the TRNC is currently recognized only by Turkey. Yet, despite this, over the past few years, the interest of foreign nationals in the resort region, particularly in North Cyprus real estate, has been rapidly growing.
The economic growth indicators of Northern Cyprus are more than appealing. The main engine of the TRNC’s economy is the tourism and service sector, which accounts for about 70% of GDP. Today, the construction and real estate sales market is becoming increasingly significant for the region’s economic development. Annually, the number of foreign investors, eagerly acquiring assets in Cyprus, is increasing.
At popular resorts such as Famagusta, Nicosia, Iskele, Kyrenia, all conditions for comfortable living of foreigners have been established. Investors from abroad are attracted to life in Northern Cyprus in ecologically clean natural locations, a favorable investment climate, simple conditions for legalization of residence, the opportunity to obtain education at European level universities, developed infrastructure, lenient taxation, and many other advantages.
The tax system of the TRNC consists of various types of direct and indirect taxes. All citizens of the northern part of the island pay income tax. The state employs progressive tax rates, meaning individuals with high income pay higher taxes than those with lower income.
What are the main tax contributions for residents and property owners in the resort republic? In our expert publication, we will answer all the questions concerning the tax system of Northern Cyprus that concern foreign investors.
Primary taxes in Northern Cyprus
For investors from abroad when selecting a site for profitable investment of their capital, such primary types of tax contributions as income tax on profits, taxes for real estate owners, and obligatory local levies are crucial. In this respect, Northern Cyprus offers one of the most favorable conditions compared to European Union countries.
Income tax for individuals
Only tax residents of the island republic pay taxes and receive benefits in Northern Cyprus.
A tax resident is an individual who stays in the territory of the TRNC for more than 183 days.
Moreover, candidates for tax residency include foreigners who:
- Dwell in the country for more than 60 days during the fiscal year.
- Formally employed citizens or those who hold managerial positions in companies – tax residents of Cyprus.
- Possess residential real estate in the republic.
- Live outside of Cyprus for no more than 183 days a year.
- Are not taxpayers in other states.
Individuals (tax residents of Northern Cyprus) remit tax on profit earned within the country’s territory.
The tax on renting out apartments is 10% of the rental value.
Capital gains tax is paid by the seller during the sale of housing. The amount of tax contributions depends on the seller’s status. If the sale of real property is conducted by a private individual, then the tax rate is 2.8% of the property’s value.
For construction companies and other legal entities, the profit tax is approximately 5%.
It is noteworthy that individuals in the TRNC have certain tax exemptions and reliefs. Thus, a private person is exempted from paying tax on a house and land plot upon sale, if its area does not exceed 1 Dönüm (about 13.38 are). An additional condition is the absence of olive and carob trees on the plot. If the plot is larger than the specified figure, then the tax of 2.8% is paid only for the remaining part, that is, land exceeding the norm. If olive, carob trees grow on the homestead territory, it is envisaged to introduce tax for the entire plot, except for the area under the building.
Property Tax
The government of Northern Cyprus endeavors to augment the influx of foreign capital into the republic’s economy, hence a reduced tax burden applies to foreign nationals desiring to acquire real estate. That is, foreigners remit the same contributions to the public treasury as Cypriots.
During the purchase of real property, investors from abroad pay these fees and duties:
- Stamp duty or state fee for stamping — 0.5% of the housing’s value stated in the contract. This obligatory tax for registering the sales contract in the Land Registry is paid at the Tax Office within 21 days from the contract signing date.
- Value-added tax — 5% of the contract’s property value. VAT payment occurs 3 months before the handover of keys.
- Transformer municipal fee for connecting utilities — £1,500–£2,250. The cost varies depending on the type of housing and, specifically, on which engineering utilities are connected to the property — water, electricity, telephone line. The fee is paid to the developer 3 months before the apartment keys are handed over.
As in any other country, in the Turkish Republic of Northern Cyprus, owners of real property regularly pay standard taxes:
- Annual property tax in Northern Cyprus. The levy amount depends on the total enclosed area of the dwelling (i.e., the area excluding open terraces and balconies). To calculate the total sum, multiply the number of square meters of enclosed space by 3 TL (approximately $0.15). Owners make payment once a year at the municipality where the property is located.
- Cleanliness tax. This annual contribution includes: garbage collection and cleaning of the surrounding area, roads, care for green spaces. The tax amount is fixed, not dependent on the dimensions of the apartments or residential house, and is 100 TL.
Conclusion
The lenient tax regimen of Northern Cyprus is attractive for both enterprises and individual taxpayers.
Business proprietors pay just 1% tax on commercial real estate from corporate earnings, plus receive numerous advantages such as:
Absence of commission from gains, VAT, and customs duties, which shareholders of global firms must remit.
The TRNC does not endorse automatic exchange of information about financial accounts of foreign residents with tax authorities of other nations.
The minimal sum of capital subject to taxation starts from €20,000.
Northern Cyprus does not participate in the EU directive on savings tax. Hence, foreign nationals can freely maintain their savings in bank accounts and utilize them without any transaction restrictions.
In turn, for private owners from abroad, liquid real estate in the territory of Northern Cyprus represents a viable method for preservation and augmentation of capital, an additional source of passive income, as well as an opportunity to enjoy housing for vacation or relocate to the resort island republic for permanent residency.
Sources:
- https://en.wikipedia.org/wiki/Northern_Cyprus
- Turkey’s State Policy on Cyprus after the Occupation of the North of the Island (1974-1983)
THE ISLAND (1974-1983)
Text of scientific article on specialty “History and Archaeology”
Khachatryan Rafik
