VAT Calculation on Real Estate in Cyprus

Understanding VAT on Real Estate Transactions

Standard Rate: The standard VAT rate is 19%.
Reduced Rate: A 5% VAT rate applies to new primary residences under specific conditions.
Exemptions: Certain transactions like sales of old properties, land, and some rentals are exempt from VAT.
Commercial Properties: Typically attract the standard 19% VAT rate.

Key Points for Buyers and Sellers

Ensure eligibility for reduced rates.
Consult a tax advisor for personalized advice.
Use our VAT calculator to estimate your costs.

For more details, explore our VAT calculator from the right.

	Old Regulation	New Regulation
Standard Rate (19%)	Does not qualify	Does not qualify
Reduced Rate (5%)	Does not qualify	Does not qualify

VAT calculation for Old properties

In Cyprus, VAT is generally not applied to the sale of old or previously owned properties. VAT is primarily applicable to new properties or those undergoing significant renovations that make them essentially new. Here are the key points regarding VAT on old properties:

Old Properties: Sales of old properties are typically exempt from VAT. This means that if the property status is marked as “Old,” VAT is not calculated or applied. But in this case a Property Transfer Fee is applicable. More details about the Property Transfer Fee you may find here.
Commercial Properties: For commercial properties, VAT rules can differ, but in the context of old residential properties, VAT is usually not applicable.
Significant Renovations: If an old property undergoes significant renovations, it might be considered as a new property for VAT purposes, depending on the extent of the renovations.

New rule for VAT regulation on Real Estate Transactions

In 2023, Cyprus made significant changes to the VAT regulations for property purchases, especially concerning the reduced VAT rate for primary residences. The new VAT calculation rules primarily affect residential properties and do not generally apply to commercial properties.

Here are the key updates:

Reduced VAT Rate: The reduced VAT rate of 5% now applies to the first 130 square meters of a primary residence. To qualify for this rate:
- The primary residence must have a value up to EUR 350,000.
- The total transaction value must not exceed EUR 475,000.
- The total constructed internal areas must not exceed 190 square meters.
Standard VAT Rate: Any part of the property exceeding 130 square meters is subject to the standard VAT rate of 19%. If the property exceeds the total cost of EUR 475,000 or the buildable area of 190 square meters, the standard VAT rate of 19% applies to the entire cost.
Special Provisions: Individuals with disabilities are entitled to the reduced VAT rate of 5% for the first 190 square meters of their primary residence.
Transitional Provisions: Properties with planning permissions issued or applications submitted before October 31, 2023, are still subject to the previous VAT rules. These rules allowed for a reduced 5% VAT rate on the first 200 square meters under specific conditions.
Refund and Reapplication: Previously, individuals who benefited from the reduced VAT rate and later moved out of their primary residence had to refund the entire VAT benefit. The new law allows these individuals to apply for the reduced VAT rate for a new residence within ten years without refunding the previous benefit but requires repayment of the VAT difference for the remaining years within the ten-year period.

These changes, outlined in Law 42(I)/2023, aim to make the reduced VAT rate more equitable and to accommodate specific needs, such as those of individuals with disabilities and large families.

For more detailed information, you can refer to the sources from KPMG, LLPO Law Firm, and IMP Law.

Possible Exemptions/Reductions:

First-Time Buyer:
- Description: First-time homebuyers may qualify for reduced VAT rates or specific exemptions.
- Impact: If the buyer is purchasing their first home, they might benefit from reduced VAT rates, typically the 5% rate on the first 130 square meters under certain conditions.
Disabled Individuals:
- Description: Individuals with disabilities may be entitled to additional VAT reductions or exemptions.
- Impact: For disabled individuals, the reduced VAT rate of 5% might apply to the first 190 square meters of their primary residence.
Large Families (Three or More Children):
- Families with three or more children may be eligible for special VAT reductions.
Renovations of Listed Buildings:
- Renovations of properties classified as listed buildings can sometimes qualify for reduced VAT rates.
Energy Efficiency Improvements:
- Certain energy efficiency improvements or installations of renewable energy systems can qualify for reduced VAT rates.

Primary Residence Impact:

Reduced VAT Rate Eligibility:
- Primary Residence: When a property is purchased as a primary residence, it may qualify for a reduced VAT rate of 5% on the first 130 square meters of the property, provided certain conditions are met (e.g., purchase price up to EUR 350,000 and total area up to 190 square meters).
- Not Primary Residence: Properties not designated as primary residences do not qualify for the reduced VAT rate and are subject to the standard VAT rate of 19%.
Conditions for Reduced Rate:
- Residence Requirement: To benefit from the reduced VAT rate, the buyer must use the property as their primary residence for at least 10 years.
- Size and Cost Limits: The reduced rate applies to the first 130 square meters of properties with a value up to EUR 350,000 and a total area up to 190 square meters. If these limits are exceeded, the standard rate applies to the excess.
Transitional Provisions:
- For properties with planning permissions issued or applications submitted before October 31, 2023, the previous rules apply. The old rules allowed a reduced rate for the first 200 square meters under certain conditions.

VAT on Commercial Property in Cyprus

When calculating VAT for commercial property in Cyprus, the rules differ from those applicable to residential properties. Here are the key differences and considerations:

1. Standard VAT Rate:
  - The standard VAT rate of 19% generally applies to the sale of commercial properties. This includes offices, shops, and other non-residential properties.
  - There is no reduced VAT rate for commercial properties, unlike residential properties which may qualify for a reduced rate under certain conditions.
2. Exemptions:
  - Some transactions involving commercial properties may be exempt from VAT. For example, the sale of undeveloped land and buildings older than 10 years are typically exempt from VAT.
  - Leasing of commercial property is often subject to VAT, but there may be specific conditions under which exemptions apply.
3. Renovations and Conversions:
  - Significant renovations or conversions of commercial properties may attract VAT at the standard rate of 19%.
  - If the renovations or conversions effectively create a new property, the sale may be subject to VAT.
4. Special Cases:
  - Certain transactions, such as the transfer of a business as a going concern, can be exempt from VAT under specific conditions.
  - VAT may also be applicable to the construction and sale of new commercial properties.
5. Input VAT:
  - Businesses registered for VAT can typically reclaim the VAT paid on commercial property purchases as input tax, provided the property is used for taxable business activities.
6. Mixed-Use Properties:
  - Properties used for both residential and commercial purposes may have a more complex VAT treatment, with the applicable rate potentially being apportioned based on the proportion of use.

VAT for Land and plots in Cyprus

The VAT rules for land or plots in Cyprus are distinct from those for residential and commercial properties. Here are the key points to consider:

Sale of Building Land:
- Applicable VAT Rate: The sale of building land is subject to the standard VAT rate of 19%. This applies to land intended for construction, including plots sold by property developers or individuals.
- Definition: Building land typically includes land with planning permission for development or land that is zoned for building according to local regulations.
Exemptions:
- Undeveloped Land: The sale of undeveloped land not intended for building purposes is generally exempt from VAT. This includes agricultural land or plots without building permits.
- Exempt Land Transactions: Transactions involving land not intended for development or with specific exemptions under VAT laws may not attract VAT.
Special Rules for Developers:
- Property developers selling plots of land for construction purposes must charge VAT at 19%. This ensures that VAT is consistently applied to development projects.
Transfer of Business as a Going Concern:
- If the land is part of a business transfer as a going concern, the transaction may be exempt from VAT, provided specific conditions are met.
Transitional Provisions:
- Any land transactions that had their planning permissions or applications submitted before specific cut-off dates may follow the old VAT rules, depending on the local regulations in place at the time.

Conclusion

The VAT treatment of land or plots in Cyprus primarily depends on the intended use of the land and its classification under local planning regulations. Building land typically attracts a 19% VAT rate, while undeveloped or agricultural land may be exempt from VAT.

For more detailed and specific guidance, consulting the Cyprus VAT Authority or a professional tax advisor is recommended. This ensures compliance with the latest regulations and correct application of VAT.

Let’s consider some examples for the Old and New rules

Please find some examples for VAT calculation in the table below:

Condition	OLD LAW	NEW LAW
Applied to Area	200 sqm	130 sqm
Applied to Price	Not Applicable	350 000 euro
Total Transaction Value	Not Applicable	475 000 euro
Case Studies
Case 1: Buying apartment size 100 meters and price 300 000 euro.	15 000 euro	15 000 euro
Case 2: Buying apartment size 120 meters and price 360 000 euro.	18 000 euro	68 400 euro
Case 3: Buying new apartment for personal use 150 sqm and 400 000 euro.	20 000 euro	76 000 euro
Case 4: Buying house size 200 sqm and price 500 000 euro.	25 000 euro	95 000 euro
Case 5: Buying house size 250 sqm and price 700 000 euro.	54 600 euro	133 000 euro