Introduction

In the aftermath of the Turkish invasion of Cyprus in 1974, the Central Agency of Equal Distribution of Burdens (Establishment, Objects, Responsibilities and Other Related Matters) Law of 1989 (141/1989) (the “Law”) was enacted in acknowledgement of the need to ease the burden suffered by persons who were stripped of their right to occupy and use their properties following the events of 1974.

To this end, the Law established the Central Agency of Equal Distribution of Burdens (the “Central Agency”), a public law legal person supervised by the Minister of Finance on behalf of the State, with a mandate to provide state relief and support -including certain forms of financial assistance- to eligible persons.

For the purposes of the Law, persons eligible to receive such state support are owners of immovable property that is either inaccessible or which is legally or practically impossible to exploit owing to the continued occupation of the norther part of Cyprus by the Turkish armed forces.

Imposition of Levy

The Law was recently amendment by law L.12(I)/2021 and subsequently by law N.172(I)/2022, with the most important change to the applicable legislative framework concerning the imposition of a new levy for the purpose of raising funds in order to facilitate the attainment of the objectives of the Central Agency. Subject to a limited number of exceptions which are expressly referred to in the Law, the new levy is payable in the context of a sale of immovable property in the Republic of Cyprus as well as in the context of a sale of shares in a company which owns (directly or indirectly) immovable property in the Republic of Cyprus which was concluded on or after 22/02/2021.

In particular, a levy at a rate of 0,40% on the sale price of any immovable property (in respect of which a general valuation price has been determined by Department of Lands and Surveys) is payable by the seller at the time of the transfer and registration of title in the immovable property in question.

In the case of sale of shares of a company that is not listed in any recognised Stock Exchange and which, either directly or indirectly, owns immovable property (in respect of which a general valuation price has been determined by Department of Lands and Surveys), the seller of shares must pay, at the time of transfer of the shares, a levy at a rate of 0,40% on the price of the last valuation carried out by the Department of Lands and Surveys on the immovable property in question corresponding to the shares being transferred by virtue of such sale.

Interestingly, pursuant to the provisions of the Law (as amended), the person responsible to collect the levy is the Director of the Tax Department “who issues the relevant confirmation of payment required at the transfer of title in immovable property or at the transfer of shares of a company which owns, directly or indirectly immovable property”. From a practical standpoint, this provision appears to be somewhat at odds with the obligation of the seller (in either case) to pay the levy at the time of the transfer of the property or the shares (as the case may be).

In practice, the levy in question is paid, not at the time the transfer of the property or the shares in the name of the purchaser is completed, but rather, well in advance of the transfer of the property or the shares (as the case may be), for the purposes of issuance by the Tax Department of the necessary tax clearance certificate that is required in order for the transfer of the property or the shares (as the case may be) to be completed.

It must be stressed that the obligation to pay the levy in either of the aforementioned cases, is in addition to any other tax, levy or charge payable by the seller to any competent authority, department, council or body pursuant to the provisions of any other law.

Exceptions

It is worth noting at this juncture that the following transactions are exempt from the obligation to pay the levy:

Where, in the context of a loan restructuring scheme or arrangement, the transfer of immovable property, or the transfer of shares of a company which, either directly or indirectly, owns immovable property, is required, no levy is imposed on the sale price or the valuation price (as the case may be) that is used for the reduction or settlement of non-performing loans.

Furthermore, where, in the context of a company reorganization, the transfer of immovable property, or the transfer of shares of a company which, either directly or indirectly, owns immovable property, is required, no levy is imposed on the sale price or the valuation price (as the case may be).

Finally, in the event that a sale agreement has been deposited and/or lodged at the Department of Lands and Surveys or where an Instrument of Transfer of Shares has been filed at the Department of the Registrar of Companies and Intellectual Property bearing a transfer date, prior to the entering into force of the amending law, L.12(I)/2021 (i.e. 22/02/2021), no levy in respect of the sale price shall be imposed for the purpose of execution of the said document.

Commencement of legal Proceedings in Case of Non-Compliance and Important Information

In accordance with the provisions of the law (as amended), in case of failure or omission by any affected person to pay the levy or any other administrative fines or penalties, the Director of the Tax Department shall commence legal proceedings for the purpose of collecting any due amount as a civil debt owed to the Republic.

An announcement of the Tax Department posted on 21/11/2022 in the official webpage of the Press and Information Office of the Republic of Cyprus states that with regards to transactions taking place between 22/02/2021 and 18/11/2022, the Director of the Tax Department is willing to afford a reasonable timeframe for the settlement of the levy without the imposition of interest or other charges. 

At the same time, as from 21/11/2022 the Department of Lands and Surveys declines to give effect to any transfer of immovable property in the event that the payment of the levy continues to be outstanding at the time of transfer.