Cyprus has introduced a revised VAT scheme for primary residences in 2023, aimed at boosting homeownership. While the reduced VAT rate for primary residences remains at 5%, significant changes have been made to the criteria governing this tax scheme.
In this article, we’ll delve into the new criteria and what they mean for property buyers in Cyprus when dealing with Cyprus Property and Real Estate.
Previous VAT Regime – Still in Effect:
The previous VAT rules will continue to apply to any project for which a planning permission application was submitted until October 31, 2023.
Under the previous regime, a reduced 5% VAT rate was applicable to the first 200 square meters (sq m) of a property if it met the following conditions:
- It was a new house or apartment.
- It would serve as the individual’s primary and main residence for at least 10 years.
- The applicants had reached the age of 18.
- The 200 sq. meters included the internal covered areas, excluding stairs.
What if a property exceeded 200 sq m but met the other criteria? In such cases, the standard 19% VAT rate would apply to the remaining square meters.
New Changes to the Cyprus Reduced VAT System for Primary Residences:
As of June 2023, Cyprus has implemented changes to the reduced VAT criteria for primary residences.
Under the new rules, the reduced 5% VAT rate applies to the first 130 sq.m of a primary residence if the following conditions are met:
- The primary residence has a value of up to EUR 350,000.
- The total transaction value does not exceed EUR 475,000.
- The total constructed internal areas do not exceed 190 sq m.
Individuals with disabilities are entitled to a reduced rate of 5% on the first 190 sq m of their primary residence.
The Legal Framework:
These changes are governed by Law 42(I)/2023, published in the Government Gazette on June 16, 2023.
The new criteria will not apply if planning permission has already been issued or if an application for planning permission is filed before October 31, 2023.
To benefit from the reduced VAT rate, the application should be submitted at the relevant VAT department:
- After signing and stamping the contract of sale.
- Once payment has been made to the Developer/Constructor.
- Before using the property, the applicant should not occupy it until applying for the reduced VAT rate.
When applying for the reduced VAT rate when buying a new property, ensure you have the following documents on hand:
- Passport/ID copy.
- Marriage certificate (if applicable).
- Application Form (provided).
- Planning/Building Permits and the respective applications.
- Architect plan (diagram) to confirm the internal (buildable) areas.
- Residence permit (if applicable).
- Stamped Contract and receipt of payment.
- Contractor’s license.
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.