Over 50,000 British expats live in Cyprus, and many more own homes there. The costs of purchasing a property can be offset by healthy rental income but, before taking the plunge, foreign investors should make sure they don’t fall foul of Cyprus’s property laws.

The Acquisition of Immovable Property (Aliens) (Amendment) Law 54(I) of 2003 states that anyone who is not a resident of Cyprus can only buy one property on the island. What’s more, foreigners without a residence permit are not entitled to rent out their property.

The good news is that there are many ways of avoiding these restrictions. For example, if you wish to buy more than one property, you can make your purchase through an international trust fund. Similarly, the authorities have no means of checking whether the owner is renting out the property – which is why so many people do it. There are even Cypriot lettings companies that will rent out and manage your property for you.

For obvious reasons, this guide cannot recommend that you bypass Cypriot law and, should you wish to explore any of these legal loopholes, always seek professional advice first.

Experts are predicting that Law 54 (I) will be abolished soon. In fact, changes are already afoot as, on 1 May 2009, non-resident EU citizens will be allowed to buy as many properties as they want.

Cyprus’s letting potential

Cyprus is one of the most alluring investment markets in Europe. It offers good capital appreciation (an estimated 15% to 20% per annum for the past two years) and letting potential is also excellent.

The island offers lengthy holiday-let seasons and, from May to September, you can expect an occupancy rate of around 60%. During high season, a two-bedroom apartment or townhouse with a communal swimming pool might make around C£45 a day, while a three-bedroom villa with a private pool might achieve up to C£150.

Good areas for investing in a buy-to-let property for short-term lets include the popular tourist areas of Páfos, Protarás and Ayia Napa.

A strong, driving force behind the Cypriot buy-to-let market is the waning popularity of package holidays. More and more holidaymakers are now booking their own flights and accommodation – renting a property for the duration of their stay.

In fact, the only real threat to your rental potential appears to be further trouble in the Middle East.

Residential letting

A growing number of investors are choosing to cash in on the more reliable, though not as lucrative, residential letting market. This is very healthy at the moment with domestic demand high. Not only do many Cypriots need long-term rental accommodation, there is also an increasing international demand as low-cost office and business running costs tempt foreign businesses to the island. Added to this, the EU accession has meant that many European companies are setting up permanent bases in Cyprus and relocating staff.

Though long-term lets reduce rental income by an estimated 30% to 50%, this can be offset by the lack of void periods experienced with shorter lets. Many developers offer leaseback schemes on property of between 12 and 24 months – such is their confidence in the market.

A two-bedroom apartment or townhouse with a communal pool might achieve up to C£300 a month, while a three-bedroom villa with a private pool will claim between C£600 and C£1,000.

The best places for investment in the residential market are currently in and around the business districts of Nicosia, Limassol and Larnaca.

Leasing laws

Both legally and in terms of tax there is no difference between long and short-term lets, provided that the long-term let is for a period of less than 33 years (under current Cypriot leasing laws, any longer would qualify as a sale). You will need to seek proper tax advice on claiming income from rentals due to the lack of clarity in the legislation surrounding it. However, for an indication of what you’ll be liable to pay if you declare the income in Cyprus, consult the ‘Income Tax Rate’ information in the 'Living & Working' section of our guides, which you can access via the toolbar at the top of this page.

DEFENCE CONTRIBUTION AND TAX EXEMPTIONS

A 3% ‘Defence Contribution’ will be charged on 75% of the gross rental income.

Before calculating the income tax due, you can deduct the following exemptions:

• 20% of gross rental income for repairs and maintenance.
• 3% depreciation on building costs (this does not apply for land).
• Any interest on a loan to acquire or improve the property (e.g. a mortgage).