Reduced VAT Rate of 5% on the Purchase of a Residence in Cyprus – Conditions and Criteria
Cypriot legislation provides for the application of a reduced VAT rate of 5% on the purchase or construction of a residence, subject to specific and strictly defined conditions. This scheme has a social character and is intended to support individuals acquiring a primary and permanent residence.
The reduced VAT rate is not applied automatically and requires that all statutory conditions are met cumulatively.
1. Eligible Persons
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The beneficiary must be a natural person (not a legal entity or company).
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The buyer must be over 18 years of age.
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The buyer must not have previously benefited from the reduced VAT scheme for another residence.
2. Characteristics of the Residence
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The residence must be new (first delivery).
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It must be acquired for use as the buyer’s primary and permanent residence.
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The property must not be used mainly or exclusively for investment or commercial purposes, such as long-term or short-term letting (e.g. Airbnb).
3. Size and Value Thresholds
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The reduced VAT rate of 5% applies to the first 130 square metres of the residence.
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The total covered area of the residence must not exceed 190 square metres.
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For full application of the 5% rate, the value of the residence must not exceed €350,000.
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The total value of the transaction must not exceed €475,000.
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Any area or value exceeding the above thresholds is subject to the standard VAT rate of 19%, on a proportional basis.
4. Obligation to Use as Primary Residence
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The residence must be used as the buyer’s primary and permanent residence for a minimum period of 10 years.
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If the property is sold, rented out, or its use changes before the completion of the 10-year period, the tax authorities may require repayment of the VAT difference retrospectively.
5. Application Procedure
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An application and sworn declaration must be submitted to the competent tax authorities.
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The application must be accompanied by the relevant documentation (sale agreement, building permits, architectural plans, buyer’s identification details, etc.).
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The reduced VAT rate applies only after official approval of the application.
6. Transitional Provisions
For certain residences where the planning permit was issued before a specified date, transitional provisions may apply, allowing different size thresholds, subject to conditions and strict deadlines.Conclusion
The reduced VAT rate of 5% constitutes a significant tax benefit; however, it does not apply automatically or universally. Proper legal assessment of each case is essential, both prior to signing the sale agreement and before submitting the VAT application, in order to avoid future tax exposure or retrospective VAT liabilities.
These revised criteria for the 5% VAT rate on primary residences in Cyprus aim to make homeownership more accessible. It’s essential for property buyers to understand these changes and to make informed decisions regarding their investments.
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