- within Litigation, Mediation & Arbitration and Wealth Management topic(s)
As part of commercial transactions in Cyprus, certain agreements are required to be stamped in accordance with the provisions of the Stamp Duty Law 19(I)/1963, as amended (the "Law").
Accordingly, it is of paramount importance for the relevant parties to understand when and why agreements need to be stamped.
Agreements which need to be stamped
Generally speaking and subject to certain exceptions set out in the Law (i.e in certain debt re-organisation scenarios, agreements for sale of goods not involving immovable property or services), based on the Law and on a number of cases decided by the Cypriot courts, stamp duty is payable on any agreement set out in Appendix 1 of the Law to the extent that, irrespective of where the agreement is executed, it relates to:
- any property situated in Cyprus e.g., an agreement securing certain obligations through the creation, for example, of:
- mortgage on an immovable property situated in Cyprus;
- a pledge on shares, units, interests and/or other rights in, for example, a Cyprus company, partnership, or investment fund registered in Cyprus or a trust governed by Cyprus laws, as applicable; or
- a floating and/or fixed charge over any specific and/or all the property of, amongst other things, a Cyprus company, partnership or investment fund registered in Cyprus or a trust governed by Cyprus laws, as applicable; or
- "matters or things to be performed or done in Cyprus". This phrase is a rather broad one, receiving wide interpretation, with no limits being ever imposed on it by Cypriot courts. Based on the foregoing, it is our view that it may cover situations where, for example, one of the parties under an agreement is a Cypriot company, or a company conducing its business in Cyprus or a Cypriot national and certain obligations are imposed and/or certain rights are granted to such party under such agreement resulting to certain acts or things having to be performed or done by it in Cyprus.
Indicatively (the list is not exhaustive), the following agreements are stampable:
- Sale-purchase agreements (whether for real estate or transfer of shares);
- Contracts between legal entities; and
- Loan agreements / financing agreements.
Obligation to stamp
Under the Law, the obligation to pay stamp duty and arrange for the stamping of the relevant agreements lies with:
- the buyer, with regards to acquisition agreements; or
- the borrower, with regards to finance agreements,
except if the agreements themselves provide to the contrary.
Applicable rates
The applicable stamp duty rates on the majority of the agreements are as follows:
- for agreements with a value between €1 and €5,000: no stamp duty is payable;
- for agreements with a value between €5,001 and €170,000: 0.15%; and
- for agreements with a value exceeding €170,001: 0.20%.
There is a maximum cap of €20,000 for stamp duty. In the event where no amount is specified in the agreement the stamp duty payable in respect thereof is €35.
In general, in transactions where a number of agreements are entered into, stamp duty (as per the applicable rates below) would be payable only on the "principal agreement" and a nominal stamp duty of €2 would be payable in respect of each of the other ancillary agreements (provided that the ancillary agreements are made between the same parties / are secondary documents).
That said, it remains for the Stamp Duty Commissioner to determine whether supplemental agreements are indeed ancillary to a principal underlying agreement (and therefore subject to the nominal duty) or if one or more are to be construed as principal agreements in their own right, and therefore attracting the higher rate of duty.
Timing for payment and penalties
With regards to timing for payment, stamp duty is payable within 30 days from execution or from the date of receipt of the agreements in Cyprus. If stamp duty is not paid within this period but is paid within 6 months after execution, the penalties payable are as follows:
- for any unpaid stamp duty not exceeding €2.00, the unpaid amount is payable, plus a penalty of €2.00.
- for any unpaid stamp duty which exceeds €2.00 but being less than €35.00, the unpaid amount is payable, plus a penalty of €35.00.
- for any unpaid stamp duty which exceeds €35.00, the unpaid amount is payable, plus 10% on the amount of the stamp duty which exceeds €35.00.
If the amount of the stamp duty is paid after a period of six months has elapsed from execution, the amount of the unpaid stamp duty is payable, plus double the amount referred to under the above.
Practical considerations and tips
Non-payment of stamp duty does not affect the validity of the agreements. However, stamp duty must be paid for an agreement to be used as evidence before Cyprus courts.
We note that it is quite common that in transactions with an overseas element, payment of stamp duty is deferred provided that (i) none of the agreements are executed in Cyprus and (ii) no originals are brought into Cyprus. Payment of stamp duty would become payable if at any time in the future (a) an original agreement is brought to Cyprus or (b) an agreement is adduced before a Cyprus court as evidence (per the above).
Finally, please note that any party which is more likely to have a claim in the future (for example a lender), needs to ensure stamping, to avoid having any issues with enforcement in the future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
