THE PRESIDENT of the Republic of Cyprus has refused to sign the new Law on the abolition, for six months, of transfer fees, as, among other negative effects, according to the reasoning behind the refusal, the Law will deprive the public revenue of €40 million.

There are, however, ways, as I will try to explain, that will lead both to the reduction of Property Transfer Fees and the increase, by several millions of Euros, of public revenue.

In the last two years the Lands and Surveys Department has issued a large number (about 25,000) of new titles, even before the new Laws on Planning Amnesty took effect. Paradoxically, only one third of the purchasers of these properties appeared before the Land Registry for the transfer of titles in their name.

As a result the public was deprived of several tens of millions of Euros in Property Transfer Fees and probably in Capital Gains Tax or other taxes. There are several explanations about this.

The main reason is, no doubt, however, the lack of motive for the purchaser to complete the transfer of the property because of:

1. the intolerable amount of the transfer fees,
2. the fact that the Law allows the purchaser to complete the transfer at any time in the future, by paying the same amount as Property Transfer Fees, without any additional penalty for the delay and
3. the possibility of tax evasion by the resale of the property through the procedure of a “Cancellation Agreement”.

The  trick of “Cancellation Agreements”, which  has grown significantly in recent years, is a procedure by which the payment of large amounts of Property Transfer Fees and taxes is avoided. More specifically:

1. the original seller/developer and the original purchaser sign a Cancellation Agreement by which the original contract is cancelled,
2. the original purchaser pays to the original seller a «cancellation fees»,
3. a new Sale Agreement is signed between the original seller and the second purchaser,
4. the original Contract of Sale is withdrawn from the Land Registry,
5. the new Contract is deposited in the Land Registry and
6. the title is transferred directly in the name of the second purchaser.

The practical consequences of this arrangement are:

1. the first purchaser/developer receives an additional profit in the form of cancellation fees,
2. the first purchaser/reseller avoids the payment of Property Transfer Fees and probably Capital Gains Tax or other taxes and
3. the public revenue is deprived of many millions of Euros.

Although this procedure is obviously illegal, as it leads to tax evasion, there is no express provision in the legislation that prohibits it.

On the basis of the above, I have the strong view that the following measures should be taken immediately, by the amendment of the relevant legislation:

1. reduction of the transfer fees rates,
2. expressly providing  that the cancellation agreement procedure is illegal,
3. the fixing of a deadline, after the issue of the title deed, within which the transfer must be completed and
4. in the case of the non timely transfer of the title, an additional sum to be paid as  penalty, depending on the duration of the delay.

By these simple and practical measures, thousands of purchasers will be encouraged to appear promptly before the Land Registry for the transfer of the titles in their names, public revenues will increase by tens of millions of Euros, tax evasion will be reduced and the property market will be supported.