Remarkable opportunities for future investments in the residential property in the Republic of Cyprus.
With the initiatives of the Ministry of Finance, intensive contacts and consultations have been conducted, both with the competent European Commission and with the Parliament, in order to reach a conclusion for the benefit of society and the economy, within the context of the specific provisions of the Community directive.
Consequently, the Cyprus Parliament has approved a new legislation on the 8th of June 2023, introducing the adjustments to the Value Added Tax (VAT) applied to the purchase or construction of primary residential houses or apartments.
Considering the new requirements and moving from a blanket 5% VAT rate on the first 200m², as it was until the implementation of a recent amendment to the VAT Law, the below listed criteria and applicability have been introduced, naming the discounted VAT rate of 5% (the full rate is 19 per cent) regarding the residence’s value and size:
- Value: the first €350,000 of the residence will be subject to the reduced 5% VAT. For residences exceeding €350,000 but the total value of the transaction does not exceed €475,000 the exceeding value over €350,000 will be taxed at the standard 19% VAT rate. Lastly, for residences exceeding €475,000 in value, a full 19% VAT will apply on the whole property price.
- Size: the first 130m² of the residence will be subject to the reduced 5% VAT. For residences exceeding 130m² but the total buildable area does not exceed 190m², the exceeding area over 130m² will be taxed at the standard 19% VAT rate. Lastly, for residences exceeding 190m², 19% VAT will apply to the whole property.
- Applicability: Another clause provides that, for persons with a disability, the discounted VAT will apply to the first 190m² of the buildable area.
The reduced VAT rate is granted when the following requirements are fulfilled:
- The property should be acquired by the buyer who is an individual (not a company) and has reached 18 years of age;
- The purchased property shall be the applicant’s main place of residence in Cyprus for the next 10 years following the transaction. However, it doesn’t mean that the buyer should live in Cyprus permanently, but at the time visiting Cyprus, the property should be the main place of buyer’s residence, demonstrating that the immovable property wasn’t purchased for commercial use;
- The buyer should not have any other property acquired earlier at a reduced VAT rate;
- The property shall be used solely for one’s own use and not for the profit (such as from renting) in Cyprus for the following 10 years. In case, when it’s decided to sell property prior to the end of 10 years period, the relevant difference between the reduced and standard VAT rate and the subsequent number of years remaining, which generated savings, will apply for payouts to the Tax Authority.
The law also provides for a transitional period, during which the new rules do not apply in cases where a town planning or building permit has been obtained or where an application for a town planning permit has been filed within four months of the effective date of the law.
The Cyprus Authorities follow the regulations and requirements of the European Commission’s guidelines driven for amendment to the law to align with market data and fulfill to the best possible extent, the requirements of the European directive, while remaining, in conjunction with the highest transaction value.
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Shanda Consult Team