Navigating Cyprus' revised Property VAT Law in 2023

Introduction

In the wake of negotiations between the European Commission and the Republic of Cyprus, significant changes to the VAT law have emerged. The revised requirements, now in effect as Law 42(I)/2023, focus primarily on a reduced VAT rate of 5% applicable to newly constructed residences in Cyprus. Published on June 16, 2023, in the Official Gazette of the Republic of Cyprus, the law introduces nuanced amendments that demand attention.

Reduced VAT Rate for New Residences

The revised legislation extends the 5% reduced VAT rate to new residences designated for primary and permanent residency. However, adherence to specific criteria outlined in applicable laws is essential for a residence to qualify for this favorable rate.

Previously, the reduced VAT rate applied to the first 200 square meters without limitations on size or cost. Law 42(I)/2023 introduces restrictions, impacting the size and cost eligibility for the reduced rate.

Key Amendments and Conditions

Law 42(I)/2023 alters the conditions for applying the 5% reduced VAT rate, specifying:

1. Applicability to the first 130 square meters of the buildable area.
2. A total cost not exceeding €350,000.
3. A buildable area not surpassing 190 square meters or a total cost exceeding €475,000.

For example, a residence of 180 square meters would have the reduced rate applicable to the initial 130 square meters, with the remaining 50 square meters subject to the standard 19% VAT rate. The total cost should not exceed €475,000.

Adjustments for Specific Individuals

Law 42(I)/2023 introduces adjustments for individuals with disabilities and families with more than three children, accommodating their specific needs within the reduced VAT rate framework.

Provisions for Individuals Claiming Reduced VAT Rate

Individuals previously benefiting from the reduced VAT rate for their primary residence can now apply for the same benefits when purchasing a new residence within ten years. Instead of refunding the entire VAT benefit, they are required to repay the difference between the reduced rate (5%) and the standard rate (19%) on the residence value for the remaining years.

Transitional Provisions

To ensure a seamless transition, Law 42(I)/2023 outlines specific conditions for residences under the previous rules, provided planning permissions are obtained or submitted by October 31, 2023.

Conclusion

Law 42(I)/2023 signifies a pivotal moment for Cyprus, bringing clarity to the VAT law and defining conditions for the reduced 5% rate for primary and permanent residences. The amendments introduce size and cost limitations, ensuring fair application. Those who previously claimed the reduced rate now have options for new residences, and transitional provisions offer a smooth shift for ongoing projects.