VAT on Property in Cyprus: A Year of Major Changes
2026 is a transitional year regarding VAT and real estate in Cyprus.
There are two very important changes already known to be implemented in 2026 that will fundamentally change the VAT treatment of real estate.
Reduced 5% VAT Rate for Primary Residence
The first transitional provision concerns the reduced 5% VAT rate for primary residence.
With Law N.42(I)/2023 of 16 June 2023, the provisions regarding homes eligible for the reduced rate will change in mid-2026.
Until now:
- There were no limits on value or size
- All homes could benefit from 5% VAT on the first 200 sqm
With Law N.42(I)/2023, criteria/limits have now been introduced regarding:
- Property size
- Property value
Under the new rules:
- 5% VAT applies to first 130 sqm
- Up to €350,000 value
- Provided that:
- Total size does not exceed 190 sqm
- Total value does not exceed €475,000
Transitional Provisions
Beneficiaries can still use the previous, more generous regime, provided that:
- The planning permit application was submitted before 31/10/2023, and
- The application for reduced VAT is submitted by 15/06/2026
This means that from 16/06/2026 onwards, the previous regime permanently ends, and all properties will be subject to the new criteria, regardless of when planning permission was submitted.
This is expected to significantly affect the real estate market, especially in Limassol, where property prices have risen substantially and homes under €475,000 are increasingly difficult to find.
Definition of Second-Hand Property
The next transitional provision concerns Regulations KDP102/2026 and KDP103/2026, published on 27/02/2026.
These regulations modify the definition of second-hand property, and therefore also the definition of new property.
This distinction is crucial because:
- Only new property sales are subject to VAT
- Second-hand properties are VAT-exempt
These regulations come into force on 01/09/2026, creating a transitional period until then.
Current Definition (Until 31/08/2026)
From 11/11/2022 (KDP 423/2022) until 31/08/2026, a property is considered new:
Before first delivery within five (5) years of completion, and any subsequent deliveries within five (5) years, provided there has not been actual use by a non-related person for at least twenty-four (24) months.
Therefore, a property becomes second-hand when:
- Either 24 months actual use by a non-related party, or
- 5 years after completion, regardless of use
New Definition (From 01/09/2026)
From 01/09/2026, a property becomes second-hand after:
- 18 months of systematic use from delivery/construction
This means:
- The 5-year rule is removed
- A property can remain new indefinitely if there is no 18-month systematic use
- The requirement for use by a non-related party is removed
Example
A person buys two apartments at the same time:
- Lives in one
- Long-term rents the second
Under Current Rules
After 24 months:
- The rented apartment becomes second-hand
- The owner-occupied apartment remains new until 5 years after completion
From 01/09/2026
After 18 months:
- Both apartments will be considered second-hand
Open Questions
Some practical questions remain:
- What happens to properties that reach 5 years completion during the transitional period?
- Will they be second-hand until 31/08/2026, then new again from 01/09/2026?
- How is 18-month systematic use applied in practice?
This is especially important for:
- Tourist accommodation
- Short-term rentals
- Seasonal properties
These properties may:
- Be available for use
- Have seasonal bookings
- Not be occupied continuously
How will usage be defined in these cases?
Positive Change
One positive aspect is that the definition will be unified in both:
- 5th Schedule
- 8th Schedule
Currently:
- A property may be considered new (VAT applies)
- But second-hand (not eligible for 5% reduced rate)
This inconsistency will now be removed.
Another Point: Option Not to Tax Rental Income
With Circular 2/2025 (published 24/03/2025), the Tax Department allowed taxpayers who:
- Treated rental income as exempt
- But forgot to submit form TF1220
to correct this.
They were granted a tax amnesty:
- Retroactive submission from 13/11/2017
- No penalties for non-payment
The original deadline:
- 31/12/2025
This grace period has now been extended to 31/03/2026.
Summary
- 5% VAT regime without limits ends: 15/06/2026
- Definition of new property changes: 01/09/2026
- Rental income non-taxation amnesty ends: 31/03/2026
Also Read: Larnaca vs Limassol vs Paphos: Which Coastal City Offers the Best Capital Growth in 2026?
Frequently Asked Questions:
1) Which Cyprus city is best for rental yield in 2026?
There isn’t a single winner. Limassol often leads for premium rents, while Nicosia can offer steadier occupancy because it is less seasonal. RICS commentary in recent quarters points to apartments as a resilient category, with Limassol showing stronger overall growth than several other districts. The best “yield” is the one you can keep after costs and vacancy.
2) Is tourism still a key driver for property demand?
Yes, particularly for coastal markets and short-stay supply chains. Cyprus recorded a landmark year for arrivals in 2025, passing roughly 4.5 million visitors, and early 2026 data also showed year-on-year increases in arrivals. Tourism does not lift every neighbourhood equally, but it supports jobs and spending that feed into rentals.
3) Are apartments generally safer than houses for investors?
Often, but “safer” depends on your tenant target and building quality. RICS/KPMG index describe apartments as showing resilience over time, with modest rises in rental values led by apartments. Still, communal fees and maintenance standards can make or break the net return, so inspect the building’s track record.
4) What should I watch for in 2026 that people overlook?
Operating realities. Water scarcity has become a serious issue on the island, and policy responses include more desalination and conservation measures. For a buyer, that can translate into questions about utility reliability, running costs, and how well a property is set up for efficient use.
5) How do I judge rental demand in Limassol quickly?
Focus on what renters really pick. Check how long similar homes stay listed and which features they have, then make sure your property matches. Search online for “flats for rent Limassol” and you’ll notice common favourites like parking, a modern kitchen, good insulation, and a well-managed building. Use that as a clue, then confirm it with local rental comparisons.