Change of the 5% reduced VAT status on the first residence

Change of the 5% reduced VAT status on the first residence.

An important issue for a potential property buyer to consider now is the
subject of VAT on the first residence. The subject of the reduced VAT
rate of 5% on the first residence has been discussed for some time in the
Parliament. It not only concerns Cyprus nationals but, also, holders of
cyprus permanent residence. The European Commission has requested the change of the existing regime, through the passing of a relevant amending bill. In the case of not competing with the above-mentioned amendment the Commission will proceed to the next stage of the infringement procedure.

EU legislation was being violated in Cyprus until today as a reduced VAT of only 5% was applied to the acquisition of a first home.

The director general of the Ministry of Finance has sent a letter dated December 16, 2022, to the president of the Finance Committee of the House of Representatives, commenting on above violation. The letter is also communicated to the attorney general of the Republic, and to the Tax Commissioner.

The European Commission has come to an agreement with the Ministry of Finance, whereby the reduced VAT rate of 5% is applied for the first 170 sq.m. houses with a total area of 220 sq.m. and of a total value not exceeding 350,000 euros. As regards the apartments, a reduced VAT rate of 5% should be applied for the first 90 sq.m. total area of 110 sq.m. and a total value of 200,000 euros. Persons with disabilities will be exempted from this regulation.

In the Commission’s letter, it is stated that the proposed amendment to the national legislation due to the violation of EU law responds effectively to the concerns and that the competent Cypriot authorities should complete the approval process as soon as possible.