A brief analysis and reference is attempted herein below on some aspects of the above legislation of Cyprus, in relation to the protection of ownership and the rights pertaining to immovable property, the regulation of relevant transactions and the developed policy in similar matters especially where foreign investments are concerned.

4.1 The Constitution of Cyprus

The Constitution of Cyprus establishes the equality of all persons irrespective of their nationality and includes provisions for the protection of human rights of all persons without discrimination. Any violation by an administrative authority of a person's fundamental rights entitles such person to request this authority to remedy the situation. The administrative authority in this case has a period of 30 days during which it must give a prompt answer to the petitioner.

Furthermore, such person has free access to any competent Court in Cyprus, as well as the European Court and Commission on Human Rights.

The right of ownership of immovable property is considered as one of the fundamental human rights under the Constitution of Cyprus and as such it is clearly and absolutely protected. According to section 23 of the Constitution, compulsory acquisition or imposition of restrictions on immovable property by the Government is regulated by the Compulsory Acquisition Law, No. 15/62, whereby the Government may acquire, in the matter of public interest and by giving just cause, property with payment of immediate compensation to the owner at the present market value. This law also provides that properties acquired as above should be returned to their owners if the purpose for which they were acquired does not materialise within three years from the date of acquisition.

Therefore foreigners who own property in Cyprus can also enjoy all those rights pertaining to property which are available to the citizens of Cyprus and can be assured that their property is absolutely protected.

4.2 The Contract Law and the Civil Procedure Law

These laws are to a large extent modelled on their English counterparts and they regulate all kinds of transactions, including those relating to immovable property and the court procedures in resolving disputes arising there from.

It is advisable that contracts referring to immovable property be made in writing, duly stamped and properly signed and witnessed.

All disputes arising from transactions concerning immovable property are governed by the laws of Cyprus and are subject to the jurisdiction of the courts of Cyprus. The parties, however, may in some circumstances agree concurrent jurisdiction of other courts or refer any dispute to arbitration before resorting to court proceedings.

4.3 The Stamp Law

The Stamp Law defines the revenue stamps payable on contracts in accordance with the purchase price as follows:

(a) For a purchase price up to CY,100.000, the revenue stamp is CY,1.50 per thousand.

(b) For a purchase price exceeding CY,100.000, the revenue stamp is CY,2.00 on every thousand over CY,100.000.

Thus, the revenue stamp on a contract for CY,150.000 will be CY,250 i.e. CY,150 for the first CY,100.000 (0.15%) and CY,100 for the remaining CY,50.000 (0.20%).

The absence of the revenue stamp does not render a contract null or void but it cannot be used in Court proceedings or for the transfer of ownership of property in the Land Registry. Unstamped contracts may be used as above if properly stamped at the time of such use, in which case a fine is also imposed according to the value and the time of execution of the relevant contract.

These laws are modeled on their English counterparts and they deal with the rights of persons as regards the disposition of their properties after death and the relevant procedures.

Cypriots cannot dispose by will of the whole of their estate if they have a spouse or children. The undisposable portion is one half of the estate if the deceased leaves a surviving spouse but no children and two thirds if he leaves children. British subjects, however, are exempt from this rule and they may dispose by will of the whole of their estate. The law applicable in all respects is the law of Cyprus.

As to wills made in Cyprus by other foreigners, the law applicable with regard to the formality of such wills is the law of Cyprus, i.e. wills should be in writing and attested by two competent witnesses and they should reflect clearly the free and true wishes of a sane and competent testator. With regard to the essence and legal effectiveness of these wills the law applicable is, for provisions referring to immovable property, the law of the country or countries where such immovable property is situated (lex rei citae) and for provisions referring to movable property, the country where the deceased was domiciled at the time of death (lex domicilii) which may not necessarily be the country of residence.

Wills may be deposited with the Probate Registrar of the District Court who issues a receipt to this effect, or may be entrusted for safe custody with lawyers.

It should be noted that upon the subsequent marriage or divorce of the testator his will should be renewed, as it will, in most cases, be automatically revoked. Testators should also seek legal advice if the executor or any beneficiary changes his name or dies or becomes incompetent to act, or if any property in the estate is subsequently sold or changes its nature, otherwise his wishes may not take effect.

It is advisable that an executor or executors be appointed in the will to carry out the wishes of the testator.

Foreigners may set up a trust by will and bequeath the whole of their estate to appointed trustees to hold the same in trust for the benefit of certain beneficiaries and to manage and dispose of it in accordance with the instructions of the testator.

If a person dies intestate or does not appoint an executor in his will, the court will appoint an administrator of his estate. If there are heirs under disability the court will appoint at least two administrators.

The administrator administers the estate according to the law, pays the debts of the deceased, collects and distributes the assets amongst the heirs and accounts to the Court. The surviving spouse inherits in equal shares with the children.

The Probates (Re-Sealing) Law makes special provisions for persons who die in the United Kingdom or in any British Dominion or in any country of the British Commonwealth and who, at the time of their death, also had property in Cyprus. According to this law, the Grant of Probate or the Grant of Letters of Administration issued by a competent Court of such country may be re-sealed in Cyprus and an administrator may be appointed by the Court to administer their estate in Cyprus. The intended administrator should accompany his relevant application to the Court for a grant of probate with copies of the Grant of Probate and will or of the Grant of Letters of Administration, certified as true copies by the Court issuing the Grant and a power of attorney of the executor/s or administrator/s appointed by such Court and upon completion of the administration he should file with the court final accounts of his administration, accompanied by a declaration of the foreign executor/s or administrator/s that the administration in Cyprus was carried out to their satisfaction.

The estate duty (inheritance tax) is calculated on the assessed net market value of the estate at the time of the death, as follows:

There is an exemption of CYP 75.000 for the surviving spouse, CYP 150.000 for each child under 21 and CY,75.000 for each child over 21 years old. Moreover, if the estate includes a house used by the deceased as his residence, then the value of such house up to CYP 150.000 is also exempted.

It is to be noted that property donated by the deceased within three years prior to his death is considered as A property passing on the death of the deceased@ and the net value thereof is added to the estate of the deceased for inheritance tax purposes. Property donated by declaration of trust is also considered as property passing on death and it is also taxed if the declaration of trust took place within 3 years prior to the death of the deceased.

In cases of re-sealings, if the deceased was domiciled in Cyprus at the time of his death, then the value of the whole of his estate, both in Cyprus and abroad, is taken into account in assessing the estate duty. Any inheritance tax paid in the U.K. will be deducted by operation of the Double Taxation Treaty between Cyprus and the U.K.

This law is based on its English counterpart and on the English principles of equity which also form part of the legal system of Cyprus.

There are currently three forms of trusts which can be set up in Cyprus, namely:

(a) a Local Trust

The settlor, the trustees and the beneficiaries are Cypriots and the trust property may include immovable property in Cyprus.

(b) an Offshore Trust

The settlor and the beneficiaries must be non-resident in Cyprus. The majority of the trustees, whether individuals or trust companies (including offshore Cyprus trust companies) must be Cypriot. The trust must be located in Cyprus so that Cypriot law is applicable and the Cypriot courts have at least concurrent jurisdiction. The trust income must be generated from foreign sources, not from business or other origins in Cyprus, but the trustees may hold immovable property in Cyprus subject to obtaining the required permit from the Council of Ministers. The trust deed must be executed in Cyprus.

(c) an International Trust

It is regulated by the International Trusts Law, No. 69/92, which extended and modernised the existing legislation on trusts. This law reflects the policy of the Government to increase the attraction of Cyprus as an offshore jurisdiction, by offering incentives to foreigners for the establishment of trusts in Cyprus with certain features which were not available within the existing domestic law. The law defines an International Trust as being a trust in respect of which:

(i) the settlor is not a permanent resident in Cyprus

(ii) no beneficiary (other than a charity) is a permanent resident in Cyprus

(iii) the trust property does not include any real property situated in Cyprus

(iv) at all times there is at least one trustee resident in Cyprus.

A trust will still qualify as an International Trust even if the settlor, the local trustee or a beneficiary (or any combination of these) is a Cyprus offshore company or partnership. A trust which fails to qualify as an International Trust because it does not comply with one of the requirements of the International Trusts Law falls within the category of Offshore Trust.

The International Trust is more popular with non-resident individuals and entities, due to the role which it plays in international tax planning exercises. This factor, together with the flexibility, confidentiality and perpetuity and the diverse attractions of the island, makes international trusts extremely attractive to all settlors in the business and commercial sector.

For more detailed information, the reader is referred to our publications on international and other trusts.

The Exchange Control Restriction Law dates back to colonial times when Cyprus was under British rule and is connected with the Scheduled Areas created by the British to promote transactions in sterling. Under this law the expatriation of funds by Cypriots or foreigners, as well as all money transactions with foreigners, are subject to the approval of the Central Bank of Cyprus in its capacity as Exchange Controller.

Foreigners who sell immovable property in Cyprus may expatriate immediately an amount equal to the sum brought into Cyprus for the purchase of such property, upon proof that such amount emanated from external funds. Any profit may be expatriated at a rate of CY,10.000.- in each subsequent year, plus accrued interest.

In order to encourage foreign investment in Cyprus, the Government has recently liberalised its policy to a great degree, allowing participation of foreigners in a great number of sectors of the economy. The new policy will allow foreigners to acquire a 100% participation in Cypriot companies in all sectors, and will relax the requirements imposed on Cypriots wishing to participate in investments abroad.

Under the new policy the only criteria foreign investors will have to fulfil are to prove that their new ventures will not pollute the environment, damage the economy or constitute a security risk.

An application will have to be submitted to the Central Bank by a foreigner wishing to invest in Cyprus. However, the criteria and time taken to process the application will be reduced to the minimum.

The main advantage of the new policy is that where the application for foreign participation does not exceed 49%, the application will be considered by the Central Bank and it will not be necessary to obtain the opinion of the relevant Government department. In the case of an application participation exceeding 49% the Central Bank will have to obtain the opinion of the relevant Government department, but the examination procedure will be relaxed.

The new policy provides for only a limited number of saturated activities, which are land development, culture, education and public utilities. The banking, insurance, financial, printing and publishing sectors will be subject to a special regime: the Central Bank will examine applications for foreign participation in these sectors and will decide on the percentage of participation and its terms and conditions.

More particulars on the new policy may be found in the relevant circular of the Central Bank of Cyprus, attached hereto as Annex 2.

This law was enacted in 1946, replacing the Ottoman Land Law prevailing until then. It is considered to be A to Z of immovable property in Cyprus, dealing with all matters concerning the tenure, registration, disposition and valuation of immovable property, within the framework of the Land Registry system of Cyprus, which comprises all the works and means by which immovable property is technically defined and drawn, legally recognised, secured and financially valued.

The Land Registry system of Cyprus is unique, in that by its function the history of each piece of land is traced back to the date of the General Survey. The rights in land are defined and secured and all transactions relating to immovable property are safe and protected.

Cyprus is one of the 4 or 5 countries in the world which maintain such an accurate and effective Land Registry system. Moreover, with the completion of the computerisation of all its services, it is expected that the services will not only be upgraded but also accelerated.

According to this law "immovable property" means:

(a) any land;

(b) buildings and other erections, structures or fixtures affixed to any land or to any building or other erection or structure;

(c ) trees, vines and any other thing whatsoever planted or growing upon any land and any produce thereof before severance;

(d) springs, wells, water and water rights whether held together with, or independently, of any land;

(e) privileges, liberties, easements and any other rights and advantages whatsoever appertaining or reputed to appertain to any land or to any building or other erection or structure;

(f) an undivided share in any property hereinbefore set out.

"Movable property" includes anything not constituting immovable property.

Section 40 of the law provides that ownership of immovable property or rights in immovable property can only be acquired by registration at the Land Registry, through the proper procedure described in the law and that such registration may only be effected by the registered owner of the property.

Under this law a purchaser of immovable property may secure the remedy of specific performance, by depositing a duly stamped copy of the contract with the Land Registry within 2 months from the date of the execution thereof, thus preventing the vendor from transferring property elsewhere or charging it for as long as the contract is valid and legally effective.

The word "Aliens" in this law should not be interpreted in its strict grammatical meaning (i.e. enemies or extra-terrestrial creatures) but as meaning "foreigners" or "non Cypriots". The reason for the use of the term "aliens" goes back to enactment of the law during the last world war when Cyprus was under British rule; it was used to control the acquisition of immovable property in Cyprus by enemies or non-British subjects. Similar provisions appear in all the colonial legislation of Great Britain.

According to this law, foreigners purchasing immovable property in Cyprus, apart from following the general rules which regulate such transactions, are also obliged to adhere to special formalities and are faced with certain restrictions, which are aimed at the proper control of foreign investments, the protection of foreign investors, the implementation of the Exchange Control Restriction Law etc.

By law the term "foreigner" (alien) is defined as any person not being a citizen of the Republic and includes a local company controlled by non-residents (offshore), a foreign company and a trust in favour of a foreign person. It does not include:

(a) non-resident Cypriots, or

(b) foreigner wives of citizens of the Republic not living apart from their husbands under a decree of a competent Court.

"Trust in favour of a foreigner" means any kind of trust of which the beneficiary or one of the existing beneficiaries is a foreigner and includes any expressed or implied contract or agreement, written or oral, under which a foreigner will not be the absolute owner but will have ownership for the benefits of another or where ownership will be held for his benefit.

The term "acquisition of immovable property" includes:

(a) A lease of immovable property for a period exceeding 33 years.

(b) The acquisition of shares in a company which is duly registered as a legal entity in the Republic or in the Sovereign Base Areas and which (in either case) has acquired immovable property in the Republic or the Sovereign Base Areas, taking into account that if any shares in the company belong mainly to foreigners, the company is considered as "controlled by non-residents".

(c ) The formation of a trust in favour of a foreigner which involves, wholly or partly, the leasing of immovable property falling within the provisions of paragraph (a) above or a shareholding in a company falling within the provisions of paragraph (b) above.

Under the Acquisition of Immovable Property (Aliens) Law, no foreigner can acquire immovable property without the prior permission of the Council of Ministers. Normally permission is granted to bona fide foreigners to acquire a flat or a house or a piece of land not exceeding three donums (about 4000 m5) for the erection of only one house for use as a residence only by the purchaser and his family.

Members of the family of an original purchaser may also acquire their own property, provided that they are completely independent of the purchaser, both financially and residentially, such as married children having their own family and business. Permission is granted for personal use, not for letting or commercial use. This rule is relaxed for offshore companies which are permitted to acquire business premises, as well as houses or flats as residences for their members or directors.

British subjects classified as "British Residents according to Annex AT" to the Treaty of the Establishment of the Republic of Cyprus, may freely trade in land in Cyprus without the permit of the Council of Ministers. This privilege was granted to some British subjects who were residents at the time of the establishment of the Republic of Cyprus, it is recorded in their passports and it is extended to their spouses and descendants.

Although it may take up to 12 months for the Council of Ministers' permit to be obtained, purchasers are in the meantime entitled to take occupation of their premises.

After the permit has been granted and the property is registered in the name of the foreigner, no further restriction is imposed on him and he may sell or dispose of it by will or other instrument. Moreover, the legal heir is not required to obtain a permit in order to have the property registered in his name. Once the Council of Ministers' approval has been obtained, an application should be submitted to the Exchange Officer of the Central Bank of Cyprus who will furnish a certificate verifying that the purchase consideration was paid in hard currency.

It should be noted that this certificate is required in the event of a subsequent sale if permission is sought to extract the proceeds of sale from Cyprus.

A prospective purchaser should always, before entering into a contract for the purchase of immovable property, conduct a search at the Land Registry to make sure that the property to be purchased is free from any encumbrances, charges or burdens. It should be noted that no such burdens may affect the right of specific performance after the contract has been deposited with the Land Registry Office.

The transfer of immovable property can be effected once permission to acquire has been granted and the Central Bank has certified the import of foreign funds. Transfer fees are payable by the purchaser on the sale price or under certain circumstances, on the current market value as follows:

Foreigners are now also entitled to borrow money for the purchase of immovable property upon mortgaging such property to the Bank from which they borrow the money.

The immovable property tax is levied on the market value of the property as assessed on the 1st January 1980 and it refers to the immovable property registered in the name of the tax payer on the 1st January of each year.

The rate of taxation is as follows:

Owners of immovable property are also subject to minor taxation under other laws, such as municipal or village rates, sewerage fees and refuse collection charges, ranging from CYP 50 to CYP 100 per annum.

As from the 1st August 1980, Capital Gains Tax is levied at the rate of 20% on gains realised from the disposition of immovable property, including gains from the disposition of shares in private companies which own immovable property.

(a) Transfers by reason of death.

(b) Donations between relatives up to the third degree of kindred.

(c ) Donations to limited companies all the shareholders of which are members, and continue for 5 years after the donation to be members, of the family of the donor.

(d) Donations from family companies to their shareholders, but only in cases where the property gifted was originally acquired by the company also by way of a gift.

(e) Donations to Charitable Institutions or to the Republic of Cyprus.

(f) Exchanges of immovable properties.

(g) Compulsory acquisitions.

In assessing the gain there must be deducted from the price received in consideration of the the disposition:

(a) the assessed market value of the property as at 1st August 1980, or

(b) the price paid or the consideration given for the acquisition of the property, if the property was acquired after 1/8/80.

(c) the subsequent increase of the value of the property due to inflation, which is calculated in accordance with the Retail Price Index, issued every month by the Statistics Department.

(d) in sales of agricultural land by farmers, the first CYP15.000 of the purchase price, provided that the farmer was residing in the same area at the time of the sale.

(e) in sales of property used as a residence by the vendor, the first CYP50.000 of the purchase price, provided that he has been using the same as his residence for at least 10 years prior to the sale.

(f) for all other sales, the first CYP10.000 of the purchase price.

Those deductions are granted only once, unless they have not been exhausted at the first sale, in which case any balance would be carried forward.

Leasing in Cyprus is governed by the provisions of the Contract Law, subject to the restrictions introduced by the Rent Control Law to protect tenants against eviction under certain circumstances.

The provisions of the Rent Control Law do not cover foreigners renting properties in Cyprus.

Leases exceeding 15 years may be registered with the Land Registry and registration should be effected within 3 months of the signing of the lease. Registered leases afford the lessee certain advantages, including the right to trade the lease.

Foreigners may not take a lease of immovable property for a period exceeding 33 years without the prior permission of the Council of Ministers, and they are not allowed to let their premises to Cypriot or foreign tenants.