Capital gains tax in Cyprus at the rate of 20% is only applicable to profits from the sale of property in Cyprus. This also applies to the sale of shares of a company that owns property in Cyprus or indirectly owns property in Cyprus and 50% of its market value is from immovable property.

However, shares listed on any recognised stock exchange are excluded from capital gains tax.

Since capital gains tax is only applicable on profit, the first step is to find the taxable profit from the sale of a property.

Simply put, the taxable profit is the difference between the price the property is being sold today versus the price the property was originally purchased for, plus any additional costs such as renovation costs, legal fees etc, plus any of the lifetime allowances if requirements are met.

Sale Price - (Purchase Price + Additional Costs + Lifetime Allowance) = Taxable Profit

Taxable Profit x 20% = Capital Gains Tax

To find the difference between the price a property is being sold for today versus the price it was originally purchased for, you can't simply deduct the purchase price from the current sale price.

If you bought a house for €100,000 in 1985, that amount of money doesn't have the same value today because of inflation.

Inflation makes money lose its purchasing power over time, so €100,000 in 1985 could buy more than €100,000 can today. To find out how much that house would cost in today's money, we must first adjust for inflation, showing the true value in today's terms.

You can find a table of Inflation Rates released and updated by the Tax Department here.

Keep in mind that if you bought your property before the 1st of January 1980, the original cost of that property is considered to be its value as of the 1st of January 1980. That value is based on the valuation of the Land Registry.

To find the the inflation-adjusted purchase price you must:

1. Divide the Inflation Rate in the year of sale by the Inflation Rate in the year of purchase. This gives us the inflation adjustment number.

2. Then, multiply the original purchase price by the inflation adjustment number. This gives you the adjusted purchase price.

   
   

Once you have found the purchase price adjusted for inflation, you should then add to the deductible amount any additional expenses that you incurred in relation to the property that were made exclusively for making a profit, provided that these expenses were not deducted from your then income tax returns.

This can include renovations that increase the value of a house and any expenses related to the sale of a house such as transfer fees, real estate commissions, legal fees, interest on loans and others.

Again, you can adjust these expenses to account for inflation to find the inflation-adjusted expenses:

1. Divide the Inflation Rate in the year of sale by the Inflation Rate in the year the expenses were made. This gives us the inflation adjustment number.

2. Then, multiply the original cost of expenses by the inflation adjustment number. This gives you the adjusted expenses.

   
   

Finally, individuals are entitled to lifetime allowances which can also be added to the deductible amount before calculating the amount subject to Capital Gains Tax.

Particularly, there are three types of allowances which an individual can claim:

Although it is possible to combine the above allowances, an individual cannot exceed the combined amount of €85,430. Additionally, you can only claim it once in your life.

Using all variables, we can accurately calculate the capital gains tax payable upon the sale of a property.

There are also a number of instances where the disposal of a property is not subject to Capital Gains Tax.