Northern Cyprus To Charge Foreign House Buyers VAT

by Lorys Charalambous, Tax-News.com, Cyprus

03 February 2005

The property industry and foreign residents’ groups in Northern Cyprus are opposing a government plan to introduce VAT at 15% on house purchases by foreigners, fearing it will further damage the already fragile confidence in the Northern market.

According to a report in the Cyprus Mail, Turkish Cypriot finance spokesman Ahmet Uzun has stated that the new tax is intended to “fill the gap” in the government’s revenues following a decision to exempt food from VAT.

“We had to make a political decision. We did not want to hurt our citizens financially, so we looked for a sector that would not be adversely affected, and this, we decided, was the foreign housing market,” Uzun explained.

However, some in the property industry believe the move is a politically motivated attempt to discourage foreign property ownership in the North following a scrapped proposal that would have prevented overseas buyers from purchasing a freehold and introduced a leasehold system.

A recent court ruling which ordered a British couple to demolish a house they were renovating, which had belonged to a Greek Cypriot prior to the Turkish invasion, has also dealt a blow to the Northern market, say developers.

“Seventy to eighty per cent of our business has been lost. It’s just one blow after another,” Hasip Izzet, spokesman for Sercem Construction told the Cyprus Mail.

Uzun refutes the allegation that the new tax is a deliberate attempt to cool interest in the North from foreigners.

“On the contrary. We want foreigners to come here and buy houses. At present there are between 4,000 and 5,000 foreigners living here. If only there were 20,000,” he observed.

Nonetheless, Uzun indicated that the government does have concerns over apparent “profiteering” by property developers in the North.

“Contractors are overcharging. One and a half years ago you could buy a house for £25,000. Now the same house costs £50-60,000. But the cost of building has not increased anywhere like as much,” he explained.

Meanwhile, the chairman of the North’s British Residents’ Society, Mike Maternaghan, has described the VAT charge as “discriminatory and grossly unfair,” and added that his members were growing increasingly worried at the government’s more hostile attitude towards foreign ownership.

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