Changes to the application of the reduced VAT rate of 5%

December 15, 2023

We would like to inform you that on 16 June 2023 an amending VAT law was published in the Official Gazette introducing changes to the requirements specified in the VAT law for the application of the reduced VAT rate of 5% for the acquisition and/or construction of primary and permanent residences.


The reduced VAT rate of 5% applies to the acquisition or the construction of a new residence in Cyprus that will be used as the primary and permanent residence, provided that the residence meets certain criteria.


Before the amending law, the reduced VAT rate of 5% applied only to the first 200 square meters of the buildable area of the residence, with no maximum cap on the size or cost of the residence. The amending law introduces limitations on the size and cost of the residence, affecting the extent to which the reduced VAT rate is applicable.


Specifically, the law states that the reduced VAT rate will be applied for the acquisition or construction of a new residence as follows:


a)on the first 130 square meters of the buildable area as determined by the building coefficient of the residence, and

b)up to a total cost of €350.000


provided, however, that the residence does not exceed:

a)190 square meters of buildable area, and

b)a total cost of €475.000.


Any residence exceeding 190 square meters of buildable area and/or having a total cost of more than €475.000 will be subject to VAT at 19% on the total cost.


The above limits are adjusted for persons with disabilities (as defined in the VAT Law) and families with more than three children.


Transitional provisions

The above provisions come into effect as from the date the law is published in the Official Gazette (i.e. 16 June 2023).  As per the transitional provisions introduced, the previous rules apply for residences for which:


a) a planning permission is obtained from the competent authority or an application for a planning permission is submitted to the competent authority by 31 October 2023,


b)the application of the reduced VAT rate is duly submitted to the Tax Authorities, within three (3) years from the date of entry into force of the amending law of the amending law (i.e., by 15 June 2026)


Additional provisions

The amendment also provides that individuals who have claimed the reduced VAT rate for their primary residence can apply for the reduced VAT for a new residence before a period of ten years has elapsed, provided they refund to the Tax Authorities the amount of VAT resulting from the application of the reduced rate instead of the standard rate (i.e., the difference between 19% and 5% = 14%) on the value of the residence for the remaining years of the ten years period (whereas before the change, they had to refund the total VAT benefit obtained).


For more information related to the above subject matter you may contact NUMERISE PROFESSIONAL SERVICES at or at +35725101010.


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