Purchasing Property in North Cyprus the procedure and guidelines

At Gürkan & Gürkan we understand that the conveyancing procedure and the legal requirements may seem complex and overwhelming at first, especially if you are an overseas purchaser. From this perspective we have created this guide to purchasing property in North Cyprus, offering a simple overview of the permission to purchase procedure and the main stages involved in the conveyancing process. It is important to note that this article should be regarded as a general guideline only and you should always seek expert legal advice about how the rules apply to your own individual case and needs. For further information on any of the issues raised in this guide or other property issues, please do not hesitate to contact our experienced team.

A. PERMISSION TO PURCHASE IN GENERAL

Purchase of property by non-TRNC citizens is subject to permission and certain restrictions. Section 9 of the Law No: 52/2008 on Immovable Property Acquisition and Long-term Lease (Aliens) provides that foreign real or legal persons may acquire immovable property in the Turkish Republic of North Cyprus based on the condition that they obtain a permission to purchase from the Council of Ministers. Under this Law, the quota is one (1) property (house or flat not exceeding 5 donums or a land not exceeding 1 donum) per person.This restriction also applies to the registration of contracts.

Although spouses were previously treated as one (1) person for the purposes of Law No: 52/2008 and their right to purchase was limited to only one property, husband and wife are now treated independently from one another and each are entitled to the same right to purchase. Please note that the permission is not a prerequisite for entering into a contract but rather for the transfer of title. The permission to purchase procedure is explained in further detail below.

If you wish to acquire multiple properties or do not prefer to take the permission route due to the length of time it takes for applications to be processed, please contact us to enquire about our trust services. For investors looking to purchase in a larger scale, we provide tailor made advice and solutions in terms of trusts as well as companies. For information regarding companies, please refer to our guide “the Foreign Investor’s Guide- setting up a company in North Cyprus”

B. THE CONVEYANCING PROCESS EXPLAINED

The conveyancing procedure in North Cyprus comprises of 5 Stages:

1. Pre-exchange of contracts

2. The actual exchange of contracts

3. Stamping and registration of the contracts

4. Permission to purchase application

5. Transfer of title

The sections below will examine each of these steps in further detail.

1. The Period Before Contracts Are Exchanged

To begin the conveyancing process, we need to receive your initial instructions. During our first meeting, we will ask you to complete our client information form, purchase permit application form and provide copies of your identification documents. We will also take all the details with regards to your chosen property including but not limited to the sale price, the payment schedule, details about any fixtures and fittings included in the sale.

The next step involves the drafting, review and the negotiation of the Contract of Sale. We will closely examine the title deeds, site plan, specifications and all other documents and/or appendices associated with the sale and raise enquiries with the seller’s lawyer. Issues that may be subject to enquiry at this stage range from verifying that all required planning and building permits have been obtained, that the building itself is in compliance with the permit and that any amendments or annexes to the property have the relevant license. We also undertake searches at the District Lands Office upon request should you wish to obtain confirmation that the Vendor is in fact the Landowner and that the property is free from mortgages, charges, injunctions or other impediments. The nature and extent of the enquiries, investigations or searches are individual to each transaction. Refer to our guide “Property Purchasing Checklist: 10 things to consider when purchasing property in North Cyprus” for more information on issues that need to be considered during the conveyancing process.

2. Exchanging the Contracts

Once all parties have approved the draft Contract of Sale, it will be signed and exchanged it in the presence of witnesses. Please take care to initial every page including the appendices. You should retain one copy of the original Contract of Sale and keep it safe.

3. Stamp Duty and Registration

Under Law No: 38/2007,  all Contracts of Sale must be registered at the District Lands Office within 21 days from the date of signature. It is required that the stamp duty tax is paid before registration can take place. You need to pay the stamp duty tax and half of the title transfer fee before you can register the contract of sale. The stamp duty tax is 0,5% of the purchase price provided that it is paid within 30 days from signing the contract of sale and a penalty applies thereafter.Half of the title transfer fee, which is 6% of the property’s assessed value, corresponding to half of the 12% title deed transfer fee, is payable at the time of the registration of the contract of sale. Once the Contract of Sale has been registered, it acts as a charge on the property and protects you from the risks of double sales, mortgages, other charges and impediments being registered on the property.

4. Permission to Purchase – the particulars

Next, we will make the application to the Ministry of Interior for your permission to purchase. The required documents for the permission application include a power of attorney, copies of identification, purchase permit application form and a police report from your country of origin showing your criminal records. The police report must be original and either in Turkish or English language. Police reports in other languages must be translated to Turkish or English and certified as the true, complete and accurate translation and sealed with an Apostille stamp. During the assessment of permission applications, The Ministry of Interior undertakes checks mainly from the army, the police, immigration authorities and the District Lands Office. The criminal history of the applicant is also taken into account as a decisive factor. If your application passes through all the checks, the permission will be granted by the Council of Ministers.

A great majority of permission applications result in success. The main grounds for refusal in rare instances are due to the criminal history of the applicant due to serious charges or the property’s location and proximity to a strategic military installation. In accordance with the Law, the Council of Ministers has the authority to impose restrictions on the acquisition of immovable property by foreigners in certain areas. Up until now, the Council of Ministers has only used such authority to restrict the acquisition of properties that are proximate to military territories for national security reasons. Therefore we advise our clients to conduct prior investigation as to the location of the immovable property they intend to purchase before signing any binding agreement in order to ensure that it is not proximate to a military base to minimise the risk of refusal.

The approximate time scale for obtaining a permit to purchase is 12-18 months. Our staff will follow up your application and supply information to the various government offices concerned (i.e. Ministry of Interior, Police/Army, Immigration and District Lands Office). Please note that you may still take delivery of your property, rent or even sell it provided that your contract is assignable, before your permission to purchase is granted and the title deed is transferred into your name. In the event that your permission application is refused, please contact our offices for further information on your alternatives.

5. Transfer of Title

We will notify you once your permission to purchase has been granted and we are ready to proceed to the final step – the transfer of title. We will complete and submit all the required valuation forms to the District Lands Office for the assessment and valuation of the property. All taxes are payable on the value which is assessed by the District Lands Office, at the time of transfer of title. The assessment is based on the contract price and the market values of the similar properties in the same area at the date of the assessment. Once we receive the results, we will calculate and inform you the taxes you need to pay at the time of transfer. If you have designated us as your power of attorney for the attended exchange you do not need to be present at the District Lands Office and we will attend on your behalf.

C. TAXES PAYABLE UPON THE TRANSFER OF TITLE

The main taxes that are usually applicable to any conveyancing transaction are as follows:

1. Transfer Fee – payable to the District Lands Office

2. VAT – payable to the Vendor (if the transfer is subject to VAT) in return for an invoice

3. Capital Gains Tax (Seller’s tax) – payable to the Tax Office

As a general principle, the Purchaser is responsible for the payment of the transfer fee and the Seller is responsible for the payment of the capital gains tax. If the transfer is subject to VAT, the question of which party will pay is determined by the Contract of Sale and whether the sale price is VAT inclusive or exclusive. The sections below will examine each type of tax in further detail.

1. Transfer Fee

The transfer fee for individual foreign purchasers is 12 % of the property’s assessed value,.Half of this fee, which is 6% of the property’s assessed value, is payable at the time of the contract registration, and the remainder is payable at the time of the transfer of title. In addition to the transfer fee, a nominal municipality contribution fee is paid at the time of transfer, which is 1% of the amount of transfer fee.

The transfer fee for local companies is 6% of the property’s assessed value. Please consult yuor lawyer for further information on this option.

2. VAT

The VAT is 5% of the sale price or the assessed value. The transaction will only be subject to VAT if the Vendor is regarded as a “Professional Vendor”. The Vendor may occasionally, request that the VAT is paid at the time of delivery of possession rather than at time of transfer of title. If the VAT is paid before the transfer of title, please ensure to request VAT invoice and receipt and keep them safe since they will be presented to the Tax Office as evidence that the VAT has already been paid.

3. Capital Gains Tax

The percentage of the tax payable depends on whether the Vendor is classified as ‘a Professional Vendor’ or a ‘Private Individual’. If the Vendor is professional %6.25 capital gains tax applies. On the other hand if the Vendor is a private individual the applicable capital gains tax rate is 2,8% unless the one-off exemption right is used. Each person has a single tax free sale right for a house as well as a land not exceeding 1 donum, in which case no capital gains tax will apply. Once this exemption right has been used all sales thereafter shall be taxed at 3.5%. Professional Vendors are not conferred with an exemption right. All capital gains tax percentages are based on the assessed value and the capital gains tax is payable upon the transfer of title.