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New reduced scheme for 5% VAT on property in Cyprus

By Katerina Irodotou

Updated: January 03, 2024

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, is a general, broadly based consumption tax in the European Union. Property transactions and land and real estate dealings belong to supply and services and are also subject to VAT.

Previous VAT 5% regime

The previous rules apply to any project for which an application for planning permission was submitted before 31 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:

  1. It is a new house/apartment.
  2. It will be used as the individual’s primary residence for 10 years.
  3. 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:

  1. The primary residence is up to EUR 350,000 in value, and
  2. The total transaction value does not exceed EUR 475,000, and
  3. 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:

  1. Planning permission has already been issued.
  2. Application for planning permission is filed before 31 October 2023.

Application procedure

The application for a reduced VAT rate is submitted to the relevant VAT department:

  1. After the Contract of sale is signed and stamped.
  2. A payment has been made to the Developer/ Constructor.
  3. Before the delivery of the property, the applicant should NOT use the property before applying for the reduced VAT rate.

Required documents

  1. Passport / ID copy
  2. Marriage certificate (if applicable)
  3. Application Form (attached)
  4. Planning / Building Permits and the applications for them
  5. Architect plan (diagram) to confirm the internal (buildable) areas
  6. Residence permit (if applicable)
  7. Stamped Contract and receipt of payment
  8. Contractor licence

Frequently Asked Questions

Do you pay VAT when buying real estate in Cyprus?

Yes. You pay a VAT of 19% unless the property is your primary dwelling. First-time buyers are allowed a reduced VAT of 5% upon conditions.

When is VAT payable when buying property in Cyprus?

VAT is always payable for real estate. If you mean when it needs to be paid, usually it is upon purchase. You will also apply for a reduction, as the case may be.

Is there a 5% VAT on renovations of properties in Cyprus?

Yes. A reduced VAT of 5% applies to the following services: plumbing and electrical, carpenter, painting, and construction. The property must be considered “older”; at least three years have passed since moving into the property. The materials are included in the reduced VAT if their value is more than 50% of the value of the whole service.

How do I apply for the reduced % VAT rate of 5% on purchasing a Cyprus property?

You will apply with a declaration to the Tax Department. You must apply before moving into the property: at any time during construction or, if you bought it from a developer, before moving in. There is a list of required documents, which you must attach. These documents are specified in the Declaration. With some exceptions, you cannot apply if you have received a grant under the Special Grant (Purchase or building of a home) Law.

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