In accordance with EU regulations and in an attempt to encourage and facilitate home ownership in Cyprus, a tax break was introduced on the purchase of new residential property for first-time home buyers in Cyprus.

Current Scheme

Cyprus VAT Tax Law provides for the imposition of 19% VAT coefficient on the purchase of newly built real estate. As an exception to this rule, the reduced 5% VAT coefficient is applied on the construction or purchase of houses or apartments for first-time home buyers who intend to use it as their main and permanent residence.

In its current form, the scheme applies to the purchase of any residential property, irrespective of the total area or value, with the reduced 5% VAT coefficient applying to the first 200m² of the property. Any area above this is taxed at the normal VAT rate of 19%.

The scheme imposes an obligation for a purchaser to maintain ownership and residency in the property for a minimum period of 10 year. If the purchaser intends to sell or rent out the property before the 10-year period elapses, a payment will need to be made to the Tax Department of the VAT difference, in proportion to the remainder of the 10-year period.

What Changes?

To ensure compliance with EU VAT regulations, the Cyprus Parliament recently reduced and clarified the scope of application of this scheme.

The amendment introduces 2 requirements which need to concurrently apply:

1. The residential property should not exceed a total maximum area of 190 m². Thereduced 5% VAT coefficient will apply to the first 130m² of the property, and
2. The value of the property should not exceed the amount of €350,000 and the total value of the transaction should not exceed €475,000.

The law will provide for the imposition of the reduced 5% VAT coefficient for the first 190 m² for the purchase of primary residence by disabled people.

Transitional Period

It is expected that the amended law will not apply to residential properties for which an application for a Town Planning Permit is submitted or a Town Planning Permit obtained within 4 months from the date of entry into effect of the revised legislation.

Next Steps

The Cyprus Parliament has approved the abovementioned amendment, which, according to a relevant announcement, will be supported by the Cyprus Ministry of Finance.

We are expecting the publication of the revised law in the Official Gazette for its ratification and entry into effect.

We anticipate that the Tax Department will release guidance on the interpretation and implementation of the amended law.

Contact our team at info@paraschou.com should you wish to find out more.