A reduced VAT system for primary residences to boost home ownership is already in place. The reduced percentage for primary residences is 5% against a general percentage of 19%. This reduced percentage of 5% is still the same, but some criteria were changed by law in June 2023.
The takeaway
New criteria for the VAT on primary residence were introduced in June 2023 with Law 42(I)/2023. The reduced rate remains the same (5%), but the property's square meters are now lower. A transitional or grace period applies.
Introduction
The Value Added Tax, or VAT, in the European Union, is a general, broadly based consumption tax. Property transactions, land and real estate dealings belong to supply and services and are also subject to VAT.
Previous VAT 5% regime – still in force
The previous rules will be applicable to any project for which an application for a planning permission will be submitted until the 31st of October 2023.
Conditions under the previous regime
A reduced rate of 5% is applied to the first 200 square metres (sq m) of a property, provided:
- It is a new house/apartment.
- Will be used as the individual’s primary and main residence for 10 years.
- The applicants have completed their 18th year of age.
The 200 sq. meters include the internal covered areas (not including stairs).
What if a property is larger but satisfies the other criteria?
The standard 19% will apply to the remaining square metres.
New changes to the Cyprus reduced VAT system for a primary residence
In June 2023, Cyprus changed the reduced VAT on primary residence criteria.
Under the new rules, the reduced rate of 5% applies to the first 130 sq m of a primary residence, provided that:
- The primary residence is up to EUR 350,000 in value, and
- The total transaction value does not exceed EUR 475,000, and
- The total constructed internal areas do not exceed 190 sq m.
Individuals with disabilities are allowed a reduced rate of 5% on the first 190 sq m of a primary residence.
The law
The new legislation is Law 42(I)/2023, published in the Government Gazette on 16 June 2023.
Transitional or grace period
The new rules will not apply where:
- Planning permission has already been issued.
- Application for planning permission is filed until 31 October 2023.
Application procedure
The application for a reduced VAT rate is submitted at the relevant VAT department:
- After the contract of sale is signed and stamped.
- A payment has been made to the Developer/ Constructor.
- Before the delivery of the property, the applicant should NOT use the property before applying for the reduced VAT rate.
Documents needed
- Passport / ID copy
- Marriage certificate (if applicable)
- Application Form (attached)
- Planning / Building Permits and the applications for them
- Architect plan (diagram) to confirm the internal (buildable) areas
- Residence permit (if applicable)
- Stamped Contract and receipt of payment
- Contractor licence
