Changes on the applicable VAT rate relating to primary residence in Cyprus were introduced in June 2023 with Law 42(I)/2023 and in April 2024 with Law 55(I)/2024.
Specifically, Law 42(I)/2023 amends the conditions for applying the reduced VAT rate of 5% to the acquisition or construction of new residences. The revised conditions are as below:
- The reduced rate is applicable to the first 130 square meters of the buildable area of the residence.
- The total cost of the residence must not exceed €350,000.
- The residence must not surpass 190 square meters of buildable area or have a total cost exceeding €475,000.
In cases which the buildable area exceeds 190 square meters or the total value of the residence exceeds €475,000, the standard rate of 19% is applicable on the purchase price or construction value of the residence.
In addition, individuals with disabilities are allowed a reduced rate of 5% on the first 190 square meters of a primary residence.
Further to the above, for families with more than three children, the total area of the residence is increased both in the case of construction and in the case of acquisition of a primary residence for each additional child beyond three children by 15 square meters.
An important amendment to the Law is that the individuals who ceased using the residence as their primary and permanent residence before the expiration of the ten-year period, can now re-apply for the 5% VAT for another property if they:
- notify the Commissioner within 30 days from the date, they ceased using the property as their primary residence and
- pay the VAT amount resulting from the difference between the reduced rate (5%) and the standard rate (19%) on the value of the residence for the remaining years within the ten-year period whereas before the amendment, they had to refund the total VAT benefit obtained.
Lastly, amending Law 55(I)/2024 introduces an exemption to the deadline of submission of the application. The individual must apply for the reduced VAT rate at any time during the construction of the residence or before moving into the property in the case of purchase. With the amendment, it is now possible to apply for reduced VAT within twelve months of moving in, provided that the individual missed the previous deadline because of absence from the Republic, illness or other serious reasons with the presentation to the Commissioner of supporting documents.
For any further guidance regarding this procedure or if you require an initial consultation, please do not hesitate to contact our Law Firm at [email protected], +357 22 251 777 or +357 25 261 777 or please visit our office in Nicosia or Limassol.