The transitional period for Cyprus’ previous 5% VAT scheme on primary residences is set to expire in June 2026. Homebuyers and developers who took advantage of this reduced rate under the old system will need to act before the cutoff date of June 15, 2026, when the updated VAT regulations fully take effect.
From June 16, 2023, to June 15, 2026, a dual VAT framework has operated in Cyprus. The 2016 VAT scheme allowed a 5% VAT rate on the first 200 square metres of a home regardless of the property’s value or size. This lenient approach faced scrutiny from the European Commission, resulting in an amendment.
The 2023 VAT Amendment Law (N.42(I)/2023) introduced stricter guidelines. Now, the 5% VAT applies only to properties up to 130 square metres with a maximum value of €350,000, provided the total area does not exceed 190 sqm and the overall price is below €475,000. Anything beyond that is subject to the standard 19% VAT.
Buyers and developers who applied for planning permits between June 1 and October 31, 2023, can still benefit from the old rate if declarations to the Tax Department are submitted by June 15, 2026. It’s crucial to meet this deadline to avoid being charged higher VAT rates retroactively.
Finance Minister Makis Keravnos emphasized that misusing the reduced VAT scheme—for example, using the property for purposes other than a main residence—may trigger repayment obligations including an additional 14% charge. Over the past three years, Cypriot tax authorities have conducted more than 5,000 inspections, recovering roughly €50 million from cases where properties were improperly classified, predominantly in coastal and student-populated areas like Nicosia‘s Aglandzia and Engomi districts.
The amended law also revises regulations concerning repeat VAT applications and family property transfers. For those applying for the reduced rate again within ten years, the repayment is now proportional to the remaining period rather than a full refund. Transfers to adult children who meet the 5% VAT criteria and use the property as a residence do not require VAT repayment, provided the Tax Department is duly notified.
Tax inspections continue year-round, with heightened monitoring during summer months when the misuse of properties for short-term rentals spikes. A voluntary compliance campaign encourages owners who no longer qualify to settle outstanding VAT amounts. Repayment plans of up to 12 installments are available, with exceptional cases eligible for extended terms.
Following the 2023 legislative adjustment, the European Commission has formally closed its infringement proceedings against Cyprus related to VAT on residential properties. This outcome ensures Cyprus avoids fines or further payments, signaling alignment with EU VAT directives.
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