Buying a house in Cyprus not only offers the opportunity to live in one of the most beautiful countries in the Mediterranean, but also considerable tax advantages. Thanks to a recent legislative change, buyers and developers of primary residences can benefit from a reduced VAT rate. This article highlights the new regulations relevant to buying a home in Cyprus and offers important insights for anyone considering realizing their dream of owning a home on the island.
Application of the reduced VAT rate to the acquisition and/or construction of main residences in Cyprus
On June 8, 2023, the Cypriot House of Representatives passed an amendment to the law that applies the reduced VAT rate of 5% to main residences. These changes, effective from June 16, 2023, introduced new conditions for the application of the reduced VAT rate to primary and permanent residences, transitional arrangements and new conditions for the right to reapply for the reduced VAT rate for a primary residence within 10 years.
Conditions for the reduced VAT rate when buying a house in Cyprus
According to the new provisions of the amended VAT law (95(I)/2000), the reduced VAT rate of 5% applies to the first 130 square meters of a main residence, up to a value of €350,000, provided that the total value of the transaction does not exceed €475,000 and the total buildable area does not exceed 190 square meters.
An exception exists for individuals with disabilities, who can apply for the reduced 5% VAT rate for the first 190 square meters of buildable area, irrespective of the property’s total buildable area. Eligible persons must fall into the newly defined category of “persons with disabilities” in the VAT Act. The transaction value per square meter may be revised at the discretion of the Commissioner of Finance and the Council of Ministers.
Transition period
A transitional period has also been established, during which the proposed changes to the VAT law – except for those relating to the re-application of the 5% VAT within a 10-year period – do not apply to cases where a building permit was granted or applied for by October 31, 2023 and a duly completed application has been submitted to the competent authority within three years of the new regulation coming into force.
Renewed application of the reduced VAT rate in Cyprus
The new legislation changes the conditions for the right to reapply for the 5% VAT rate on another property within 10 years. An individual can claim the 5% VAT rate on a new property provided that:
The Commissioner of Revenue is notified within 30 days of the date the property ceases to be used as a residence.
The amount of the difference between the VAT amounts resulting from the application of the reduced rate and the standard VAT rate paid for the remaining 10-year period during which the property is not used as a principal and permanent residence, except in the event of the beneficiary’s death or transfer to one of his or her adult children, provided that the child is a beneficiary at the time of the transfer.
Application and authorization
Entitlement to the reduced rate is only granted after receipt of a certified permit from the tax authorities. Applicants must submit a special application stating that the house will be used as a primary and permanent residence and attach various supporting documents. Applications must be submitted before the property is actually transferred to the entitled person.
Eligible persons include residents of Cyprus, EU and non-EU member states, provided that the residence is used as their main and permanent residence in the Republic.
Individuals who make a false declaration to benefit from the reduced rate are legally required to pay the difference in the additional VAT. In addition, such a false declaration is a criminal offense punishable by a fine of up to twice the amount of VAT due or a prison sentence of up to 3 years, or both.
Conclusion
Buying a house in Cyprus is more attractive than ever thanks to the new VAT regulations. The opportunity to benefit from a reduced VAT rate makes the dream of owning a home on this sun-drenched island accessible to many buyers. However, anyone wishing to take advantage of this scheme should be aware of the specific conditions and application procedure. With the right planning and advice, buying a house in Cyprus can be a worthwhile investment in your future.
