Moving forward, we aim to guide our clients to consult with tax professionals prior to any investment decision. Informed tax advice is essential in structuring profitable and compliant real estate transactions.

Investors should begin by assessing the direct and indirect taxes associated with the acquisition. These may include VAT (Value Added Tax) on the sale of new or commercial properties, transfer Fees for second-hand properties, stamp duty, capital gains tax, and ongoing obligations such as immovable property tax.

For instance, a property subject to VAT may seem more costly initially, but if the buyer is entitled to reclaim input VAT, the net cost may actually be lower than that of a VAT-exempt property. Conversely, a buyer not eligible for VAT recovery may face a heavier burden, significantly affecting the investment’s financial performance.

The market value of a property is closely linked to its tax profile. Two seemingly identical properties can differ in value depending on how their tax treatment affects the buyer. Properties with clear and favorable tax status may attract premium prices, while those with potential tax complications or ambiguities might be discounted.

Tax implications influence the property’s income stream and eventual resale. An investor targeting rental income must evaluate whether this income will be taxable, and what the associated costs will be. Similarly, future disposal of the asset may trigger capital gains tax or VAT, depending on multiple factors including usage, holding period, and structural setup.

Recently, we advised a client on the rental value of an office space in Limassol, where the client had paid VAT during the purchase of the land and the construction of the building. However, during the effort to lease the building, to his surprise, he realized that since the tenant operates in the financial sector, he cannot charge VAT. This is an example where the investor will bear a significant unforeseen cost.

When preparing feasibility studies for development projects, we include tax-related costs directly in the cash flow analysis, whether these stem from rental agreements or sale transactions. These assumptions are essential to producing realistic forecasts of return on investment and to stress-test the project’s viability under various tax scenarios.

Given the complexity and constant evolution of tax legislation, investors are advised to seek independent tax advice before committing to any acquisition. A coordinated approach involving valuation surveyors, legal advisors, and tax experts is crucial for optimizing both deal structure and long-term returns.

Demos Georgiou MSc, ΜRICS
BSc (Hons) Property Management and Investment
RICS Registered Valuer