Cyprus: Changes to application of reduced VAT rate on supply or construction of permanent residence
The amended Value Added Tax (VAT) Law, designated as Ν.42(I)/2023, ratified by the House of Representatives, and officially published in the Government Gazette on June 16, 2023, has introduced substantial revisions pertaining to the implementation of the reduced VAT rate for residential properties intended for primary and permanent habitation.
According to this modified legislation, a reduced VAT rate of 5% will apply to the initial 130 square meters of constructible residential space within a property, up to a maximum property value of €350,000. It should be emphasized that these favourable terms are applicable as long as the total constructible residential area remains below 190 square meters and the overall transaction value does not exceed €475,000.
In contrast, prior to this amendment, the reduced VAT rate was imposed on the first 200 square meters of constructible residential space without any limitations on either the total constructible area or the value of the residence.
Furthermore, a transition period has been established. During this interim period, the new provisions will not be enforced if a planning permit has been obtained or an application for one has been submitted by October 31, 2023. Also, it’s contingent on the timely submission of a fully completed application for the reduced VAT rate to the tax department within three years from the commencement date of the amended law, which ends on June 15, 2026