Understanding the 5% VAT Reduction on Primary Residences: Key Changes in 2026 Cyprus

When buying a newly constructed home in Cyprus, Value Added Tax (VAT) is usually charged at the standard rate of 19%. However, for individuals purchasing a brand-new property as their primary and permanent residence, Cyprus VAT law offers a notable reduced rate of 5%, which has long been an essential financial incentive for homebuyers on the island.

It’s important to highlight that VAT applies solely to new builds; resale properties are exempt from this tax. This article dives into the newest legislative amendments affecting the VAT reduction on primary residences starting from 2026.

The 2026 VAT Law Update

In April 2026, the Republic of Cyprus published an amendment (Law 109(I)/2026) that notably extends transitional provisions affecting applications for the reduced VAT rate.[Official Gazette] Specifically, this extension allows the Tax Commissioner to continue reviewing applications until 31 December 2026 when delays are due to planning authorities’ processing times.

The Tax Department clarified that this extension covers cases where the planning permit application was submitted or issued by 31 October 2023, but the building permit is issued after 1 January 2025 or remains pending after 31 December 2026. In such cases, applicants must submit their building permit application simultaneously with their VAT application to justify any delays.

Note that buyers with planning permits submitted or issued by 31 October 2023 and building permits issued on or before 31 December 2024 must adhere to the original application deadline of 15 June 2026.

Previous VAT Regulations

Before June 2023, the 5% VAT reduction was applied to the first 200 square meters of the buildable area of a primary residence, regardless of the property’s overall size or value. This meant that buyers of larger or luxury properties could enjoy a significant tax saving—with 5% VAT on 200 sq.m and 19% on the remainder.

The 2023 VAT Reform (Law 42(I)/2023)

New legislation introduced in June 2023 has tightened eligibility for the VAT reduction:
[Full Text of Law 42(I)/2023]

• The 5% VAT rate now applies to newly built properties where the first 130 sq.m of the buildable area qualify, but only if the total buildable area does not exceed 190 sq.m.
• The property value must not exceed €350,000, and the total transaction value must stay under €475,000 to be eligible.

There are certain exceptions to these rules for buyers with disabilities.

Transition Period: Balancing Old and New Laws

Recognizing the impact on buyers who had made commitments before these restrictions, the 2023 law included a 3-year transitional period. The reduced VAT rate under the previous law still applies for projects with planning permission applications submitted by 31 October 2023. Thus, until 15 June 2026, both old and new VAT regulations run concurrently.

Why the 2026 Amendment Matters

This extension grants eligible buyers a valuable opportunity to benefit from the more generous VAT regime before the 2023 reforms took effect. For many, this means substantial savings—potentially tens of thousands of euros—making new property purchases more financially accessible.

Final Thoughts

The 2026 amendment delivers a critical window for buyers interested in new-build properties who can still qualify for the advantageous VAT reduction. Clarity from the Tax Department on application criteria sharpens the chances of benefit.

We encourage prospective buyers to seek specialized legal advice tailored to their specific situation to navigate these VAT rules effectively.

If you’re exploring affordable houses and villas for sale in Cyprus or aiming to understand how VAT changes impact your investment, INDEX.cy is here to guide your property journey with transparency and insight.

Disclaimer: This article is intended for informational purposes only and is not a substitute for professional legal advice.

Maria Kokoridi
Senior Associate, Philippou Law Firm (philippoulaw.com)