Amendments to the Reduced VAT Rate for Properties in Cyprus

On June 16, 2023, the VAT law was amended with respect to the conditions for applying the 5% reduced VAT rate on the acquisition or construction of a primary residence in Cyprus. The 5% reduced VAT applies to the acquisition or building of a new primary residence, provided certain conditions are met.

Previously, the reduced rate was only applicable to the first 200 sqm of the residence’s buildable area, without restrictions on the size or cost of the residence. The revised law now sets restrictions on these factors, affecting the extent of the reduced VAT rate’s applicability.

The amended law stipulates that the reduced VAT rate will be applied to the acquisition or construction of a new residence, specifically on the first 130 sqm of the buildable area, as dictated by the building’s coefficient. This applies up to a total cost of €350,000, given the residence does not surpass 190 sqm of buildable area and €475,000 in total cost.

Residences exceeding these limitations will be subject to a VAT of 19% on the total cost. Adjustments have been made for disabled individuals and families with more than three children.

Transitional provisions imply that these changes are effective from the law’s publication date in the Official Gazette (16 June 2023). The previous rules will continue to apply for residences for which a planning permission is obtained or an application for a planning permission is submitted to the competent authority by October 31, 2023, and a reduced VAT rate application is duly submitted to the Tax Authorities within three years from the law’s implementation date (by June 15, 2026).

Additional clauses in the amendment allow individuals who’ve availed of the reduced VAT rate for their primary residence to apply for the reduced VAT for a new residence before a ten-year period lapses, on the condition that they refund the Tax Authorities the VAT difference from the application of the reduced rate instead of the standard rate on the residence’s value for the remaining years of the ten-year period.

We are ready to discuss these changes in more detail as needed.