For those who have taken advantage of Cyprus’s former 5% VAT reduction on the purchase or construction of a primary residence, the clock is ticking. The transitional provisions introduced by the 2023 VAT amendment law will expire in June 2026, after which the preferential treatment linked to the old scheme will no longer apply.
Between June 16, 2023, and June 15, 2026, Cyprus is operating under two VAT frameworks simultaneously. Buyers or developers with planning permits issued between June 1 and October 31, 2023, remain eligible for the reduced 5% VAT rate under the prior scheme, regardless of when construction finishes.
The original 2016 regulation allowed a 5% VAT rate on the first 200 sqm of a residence, irrespective of its value or total size. However, European Commission scrutiny led to revisions aiming to tighten these eligibility conditions.
The amended VAT law N.42(I)/2023 introduced stricter criteria for the reduced VAT rate, which now covers:
Properties exceeding these limits are subject to the standard 19% VAT rate. Special concessions remain for persons with disabilities, extending the eligible area for the 5% rate up to 190 sqm but retaining the same value cap.
Finance Minister Makis Keravnos affirmed that transitional measures apply for planning permits issued up to October 31, 2023, with necessary declarations to the Tax Department required by June 15, 2026.
Notably, properties purchased with the reduced VAT rate but subsequently used for non-primary residence purposes face VAT clawbacks, including an additional 14% surcharge. This affects buyers under schemes like residency-by-investment and others.
The Tax Department has intensified inspections—over 5,000 cases in the last three years—recovering around €50 million from irregularities, particularly in prominent coastal locations and student-heavy districts such as Aglandzia and Engomi, where some homes rented on digital platforms contravened scheme rules.
The Tax Department plans to issue further details on VAT calculations for properties surpassing the stipulated area or value thresholds. A VAT calculator is already accessible on their website to assist prospective buyers in budgeting accurately.
Significant changes also apply to repeat applications and ownership transfers. Previously, applying for reduced VAT benefits again within ten years required full repayment. Now, repayment obligations are proportional, based on unused years remaining on the ten-year period.
Additionally, transfers to adult children who meet VAT scheme criteria are exempt from repayments if the property is used as a main residence. If the parent retains occupancy after transfer, no repayment is due, though the Tax Department must be formally notified.
Authorities continue to rigorously monitor properties in tourist and coastal zones to ensure only genuine primary residences benefit from the reduced VAT rate. While inspections occur year-round, they intensify during summer months when misuse spikes.
A voluntary compliance initiative encourages owners who no longer meet VAT scheme requirements to come forward and settle outstanding amounts. Flexible repayment plans are available, including up to 12 instalments, with longer terms possible under exceptional hardship cases.
Importantly, the European Commission has formally closed its infringement case against Cyprus, accepting the 2023 VAT amendments as compliant with EU law. Cyprus will face no fines or further penalties, providing certainty for property buyers and investors in the market.
For those exploring options, whether looking for Cheap Houses and Villas for Sale Cyprus or other property types, understanding VAT implications is crucial in making informed investment decisions.
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