Badges of Trade

These are criteria used to determine whether an isolated transaction should be treated as a trading transaction and therefore taxed under income tax or as a capital transaction.

The 10 factors that should be considered in deciding whether a transaction is a trading one are:

• The subject matter of the transaction
• Length of ownership
• Frequency of similar transactions
• Supplementary work
• Circumstances responsible for sale
• Motive
• Method of financing the cost
• Knowledge of the owner
• Method of acquisition
• What happens with the sale proceeds

Capital Gains Tax Calculation

Capital gains tax is levied at a fixed rate of 20% on both individuals and companies on gains arising from the sale of immovable property situated in Cyprus and sale of shares in a company, not listed on a recognized Stock Exchange, which owns immovable property in Cyprus . Therefore the important factor is the location of the property and not the residency of the owner.

The capital gain is calculated after deducting from the sales proceeds the original cost and any additional expenditure, adjusted for inflation, and any allowable expenses directly related to the disposal of the building such as interest on loan and advertising.

It should be noted that if the property is purchased prior to 1980, the cost used in the calculation is the market value of the asset as at 1.1.1980.

Life Time Exemptions

These exemptions apply only for individual (not for legal person) and are used for reducing /eliminating the taxable gain. The life time exemption is given once in the life time of an individual and the max amount provided, subject to conditions, is €85.430.

The life time exemptions are as follows:

• Gains from any kind of disposal: €17.086
• Agricultural land (if main occupation is agriculture i.e. farmer): €25.629
• Disposal of principal private resident €85.430. To be eligible for this exemption:
1. The house should be used by the owner exclusively for his own habitation for at least 5 years (10 years if second time)
2. The period of use does not necessarily have to be continuous. It may be interrupted as it may happen for example during an absence overseas
3. Use of the resident means use by the owner
4. Situated in land not exceeding 1.500 sq.mts
5. Where the residence is situated on land exceeding 1.500 sq.mts, tax is payable on the proportion of the gain accruing from the disposal of the land in excess of the 1.500 sq. mts
6. No exemption is allowed where disposed in more than 1 year after it has ceased to be used by the owner

Exemptions

• Gift between relatives up to third degree of kindred
• Transfer by reason of death
• Gifts made for educational or charitable purposes to a local authority or to any approved charitable institutions in the Republic
• Gift to a company where the company's shareholders are members of the donor's family and the shareholders continue to be members of that family for five years after the day of the transfer.
• Gift by a family company, where all of its shareholders are members of the same family, to its shareholders provided the property was originally acquired by way of a gift. The property must be kept by the donee for at least three years.