Purchasing property in Cyprus often involves paying Value Added Tax (VAT) on new developments and land acquisitions. To support first-time buyers, Cyprus offers a reduced VAT rate of 5% under specific conditions, instead of the usual 19%. However, recent changes implemented in mid-2023 have adjusted these conditions, affecting how buyers can benefit from thisVAT relief.
VAT was first applied to new property acquisitions in Cyprus in May 2004, and extended to land purchases in January 2018. While most transactions on resale properties are exempt from VAT, newly built homes and plots are subject to VAT charges.
The standard VAT rate stands at 19%, but a reduced rate of 5% is available aimed at making homeownership more accessible to first-time buyers who meet defined eligibility criteria.
Prior to June 2023, the reduced 5% VAT applied to the first 200 square meters of a new property. Any portion exceeding this was taxed at 19%. This sliding scale allowed larger properties to partly benefit from the concession.
Under the new rules, the concession is more restricted:
Exceptions exist for individuals with disabilities.
Properties with planning permission applications submitted before 31st October 2023 still follow the old VAT rules.
To qualify for the 5% VAT, the property must be the owner’s main residence for at least a decade. If you sell or begin renting out the property earlier, the VAT department must be informed promptly.
Notifying the Tax Department is done through the Tax For All (TFA) portal. The application must include:
Additional documentation may be requested depending on individual circumstances.
Once submitted, the VAT Department recalculates the VAT due based on the remaining years left in the 10-year period and issues a payment statement. The payable amount is proportional to the unused period, so owners only pay for the remaining time they will not use the property as a primary residence.
After settling outstanding VAT payments, owners may apply the reduced VAT rate on future eligible property purchases, assuming all other criteria are met.
The 5% reduced VAT rate remains a valuable incentive for first-time buyers in Cyprus, promoting affordable homeownership. However, given the tighter restrictions introduced in 2023 and the strict 10-year residency requirement, buyers and owners should proceed with caution.
Before making any decisions relating to renting or selling a property that originally benefitted from the VAT reduction, professional legal advice is essential. This helps ensure compliance with government regulations, avoid penalties, and facilitate smooth transactions.
If you are looking for affordable options to make use of these VAT changes, check out our listings for Cheap Apartments for Sale Cyprus or explore our Plots of Land for Sale to find your ideal property.
Article contributed by Maria Kokoridi, Lawyer at Polycarpos Philippou & Associates LLC. For more expert insights, visit philippoulaw.com.
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