PURCHASING PROPERTY IN TRNC

A GUIDE TO TAXES PAYABLE ON PROPERTY TRANSFERS

GUIDE TO INCORPORATING A COMPANY IN THE TRNC

APPLYING FOR RESIDENCY IN THE TRNC

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PURCHASING PROPERTY IN THE TRNC AS A FOREIGN NATIONAL

As a foreign national, the regulations pertaining to the purchase of immoveable property in this country are different to those of a citizen. Firstly, you may only purchase one property on a plot size that cannot exceed one donum of land (approximately 1/3 of an acre). Married couples should bear in mind that they are deemed to be one entity and cannot take title to more than the above said. The purchase process for foreign nationals in the TRNC is a unique system whereby the purchasing party must apply to the Council of Ministers for a permission to purchase permit before the title of the subject matter property can be transferred into that person’s name at the District Land Office. Alternatively, foreign nationals are permitted to purchase larger areas of land and numerous properties via the conduit of a Limited Company registered here in the TRNC. We will expand on this area in the guide to forming a company later.

The process of purchasing a property with the assistance of Bengüsu and Hamilton is as follows: Firstly the client attends a preliminary meeting to ascertain his or her needs and the best way to proceed. Our firm then carries out due diligence examinations on the title deeds of the subject matter property to ensure they are unencumbered. When the Vendor or seller is a company we also carry out due diligence examinations on the subject matter company to ensure they are registered in the TRNC and have the capacity to contract.

Assuming these foundation checks are positive we then proceed to drafting the contract of sale, which is designed to protect the rights of both parties while ensuring they meet their obligations. After exchange of contracts, current legislation dictates that the stamp duty levied at 0.5% of the contract sale price must be paid by the purchaser within 21 days from the signing of the agreement, furthermore, the contract must then be registered at the District Land Office within the same time period. The registration of the contract serves to protect the interests of the purchaser as it enables the Land Office to secure the title from encumbrances in the period between making a client’s application for permission to purchase and further transferring the title upon receipt of the permission to purchase permit.

As part of the conveyance service Bengüsu and Hamilton make your application for permission to purchase, this process can take up to 24 months, which is why it is imperative to register the contract of sale after purchase in order to secure your interests in the title in the interim period between application and transfer. Once the application permit is granted the Purchaser and the Vendor are liable to pay their respective taxes. The Purchaser is subject to VAT levied at 5% and a further 6% for transfer tax, however, first time buyers qualify for a reduced rate of 3% for transfer tax. All taxation rates are taken from the contract sale price. Once the tax has been paid the transfer of title can take place at the district land office and the title will officially be registered into the name of the Purchaser, which concludes the process.

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A GUIDE TO TAXES PAYABLE ON PROPERTY TRANSFERS

• Transfer tax: Transfer tax is traditionally paid by the Purchaser to the Land Registry office at a rate of 6% of the contract sale price. However, every person who purchases property in Northern Cyprus has the right to reduce this rate of 6% to 3% for one purchase only. Furthermore, although traditionally this tax is payable by the Purchaser, the Vendor can be contractually bound to pay this tax if it is agreed in the terms of the contract of sale pertaining to the property being transferred.
• VAT/KDV: VAT/KDV is again traditionally paid by the Purchaser, this tax is payable to the Tax office at a rate of 5%. However, VAT is only payable if the Vendor (the registered owner of the property making the transfer) is deemed to be a professional by the tax office. Furthermore, although traditionally this tax is payable by the Purchaser, the Vendor can be contractually bound to pay this tax if it is agreed in the terms of the contract of sale pertaining to the property being transferred.
• Stopaj: Stopaj is generally paid by the Vendor to the tax office and the rate thereof depends on the tax status of the said Vendor. For example, professional and non-professional Vendors are subject to different rates of stopaj. Furthermore, although traditionally this tax is payable by the Vendor, the Purchaser can be contractually bound to pay this tax if it is agreed in the terms of the contract of sale pertaining to the property being transferred. First time sellers can apply for a stopaj exemption.
• Stamp Duty: Stamp Duty is payable by the Purchaser to the tax office within 21 days of the signing the contract of sale pertaining to the property and is levied at a rate of 0.5% of the sale price.

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GUIDE TO INCORPORATING A COMPANY IN THE TRNC

As explained in the guide to purchasing property in the TRNC as a foreign national, non-Cypriot citizens may only purchase one property up to one donum of land. Therefore, many foreign investors opt to form a company here in the TRNC in order that they may purchase more land and immoveable property than is allowed for a private foreigner under the existing regulations.

However, it is important to note that a company of this kind cannot be wholly owned and controlled by a foreign national either; a minimum of 51% of the shares of the company must be held by a Turkish Cypriot. In the working reality mechanisms can be put in place with the help of a solicitor to install trustee shareholders and Directors of Cypriot origin, which enables a foreign national to operate a company registered in the TRNC with the capacity to own unlimited immoveable property. It is worthy of note that companies that do not hold immoveable properties can generally be formed with foreign nationals as full shareholders and Directors.

In order to incorporate a company in the TRNC that can hold title to immoveable property the following criteria must be met:

• Shareholders and Directors must submit certified copies of their passports; certification can only take place in the presence of a TRNC authority domestically or alternatively in an embassy located abroad.
• Directors must submit a clean criminal record certificate from the Police authority of his or her origin country. UK citizens can apply for these from Scotland Yard or their local constabulary.
• Directors must block the sum of 10.000 New Turkish Lira in a TRNC bank account for the duration of the life of the company as a tax guarantee for any expenses the company may incur. Once this has been done the tax office will issue a certificate that can be presented to the Registrar of Companies enabling the company to be formed.
• Directors must show the share capital for the company being formed. The share capital for a company of this kind is $100.000USD, however, since the foreign shareholder/Director may only hold 49% of the company’s shares, this figure is proportionately reduced to $49.000USD, which must be blocked in a TRNC bank account for approximately two to three weeks while the company is being incorporated at which point it will be returned to the Director/Shareholder. Again upon completion of this process the bank will issue a certificate that can be presented to the Registrar of Companies in order to aid the incorporation of the company.

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APPLYING FOR RESIDENCY IN THE TRNC

When a foreign national enters the TRNC they are afforded a 90 day visitor’s visa. However, for those who wish to reside in the TRNC permanently, an annual residency permit can be applied for through the police immigration department. The following documents are necessary for an application and must be presented to the police immigration department within a foreign national’s 90 day visa period to avoid fines.

• Passport original and photocopy.
• Either title deeds to your property if you are the registered owner (original and copies). If you are not the registered owner of the property, your contract of sale will suffice (original and copies). If you are a tenant, you can present your tenancy agreement (original and copies).
• 2 passport photographs.
• A bank statement from a TRNC bank showing sufficient funds to support yourself without working.
• A letter from the Muhtar (Local village chief) of your area to say you reside in the area. The Muhtar can usually be found in the village centre in the post office or the municipal building.
• 6 New Turkish Liras stamps available from the post office.
• A certificate from state or private clinic, which shows you are free from infectious diseases such as hepatitis and aids. These tests can be carried out at private clinics and can cost approximately $200USD.

Once your residency is granted it is valid for one year and must then be renewed on an annual basis. Residency permits do not allow you to work in the TRNC, for this you must apply for a work permit, which any proposed employer can do on your behalf.