Application of the reduced VAT rate (5%) on the purchase/construction of a primary and permanent residence in the Republic
As of 1 October 2011, a reduced rate of 5% (instead of 19%) can be imposed on the purchase or construction of a property in Cyprus, as long as the property is used as the principal and permanent residence in Cyprus by the beneficiary. Specifically, a reduced rate of 5% is applied to the first 200 square meters without any restrictions on the total buildable area of the property or the total value of the transaction. In case the property is larger, the standard rate of 19% will apply to the remaining square meters provided that the rest criteria are met.
However, on 8 June 2023, Law 42(I)/2023 introduced new criteria for the application of the reduced VAT rate of 5% on primary residences effective from 16 June 2023, provided that the planning permit application was submitted after 31 October 2023. If the planning permit application was submitted before 31 October 2023, then the reduced VAT rate application will be examined based on the criteria before the amendments introduced in June 2023.
The new amendments provide that the reduced VAT rate of 5% will apply to the first 130 square meters up to a value of €350,000 provided that the total transaction value does not exceed €475,000 and the total constructed internal area does not exceed 190 square meters. In case the transaction relates to individuals that fall under the definition of “individuals with disabilities” as defined under Law42(I)/2023, then the criteria vary as follows: these individuals can apply for the reduced VAT rate of 5% on the first 190 square meters irrespective of the total buildable area of the property.
Another noteworthy amendment introduced by Law 42(I)/2023, is that of the application of the reduced VAT rate on 5% for another property during the period of 10 years. Prior to the amendment, a person who has exercised the right to acquire a residence with the reduced VAT rate of 5% may exercise the right (of reduced VAT rate of 5%) of acquiring another residence before the expiration of ten years provided that the difference in VAT between the standard and reduced VAT rate is paid. However, after the amendment, only the proportional VAT corresponding to the remaining number of years for which the property will not be used as permanent and primary residence over the 10-year period will need to be paid.
As of 27 May 2024, the submission of the application for the reduced VAT rate of 5% on the purchase or construction of a primary and permanent residence, will only be accepted through the taxpayer portal (Tax For All).
This article does not substitute the provision of bespoke legal advice. For legal expertise, you may contact Mr. Nicolas Mouktaroudes, at nicolas@mouktaroudes.com or Ms. Nikoletta Svana, at nikoletta@mouktaroudes.com
