VAT rates for buyers of new residential properties

Posted on 05 Jan 2017, by Eleni Drakou

The acquisition of new-build residential properties and the construction of private residences are subject to Value Added Tax (VAT) as per the provisions of the Value Added Tax Law (95(I)/2000). In cases where a buyer purchases a residential property with the purpose to use the property as the primary and permanent residence in the Cyprus Republic, then the property can be subject to a reduced VAT rate following the submission of a relevant application. The reduced VAT rate is applicable to European Union citizens as well as non-EU citizens (as per the Value Added Tax (Amendment) Law of 2012).

Immovable properties are exempted from VAT in cases where the application for the issuance of a Planning Permit was duly submitted before 01/05/2004, when Cyprus became a full EU member.

Standard VAT rate – 19%

As of the 13th of January 2014 and based on the provisions of the Article 17 of the VAT Law the standard VAT rate is 19%.

Reduced VAT rate – 5%

As per the provisions of the Article 18 of the VAT Law (Fifth Annex, Table C), a reduced VAT rate of 5% is applicable for the acquisition or construction of residential properties in cases where:

  • The property is or will be used as the primary and permanent residence of the buyer or the owner (the applicant) in Cyprus;
  • The acquisition or the construction of the property is or will be completed before the first occupancy into the property or the first exploitation of the property;
  • The applicant has not acquired any other residence in Cyprus with the reduced VAT rate;
  • The application for the issuance of a Planning Permit was duly submitted after 01/05/2004 to the Authorities;
  • The applicant is an adult person (18 years of age and above); as such legal entities are excluded.

The reduced VAT rate of 5% applies on the first 200 square meters of the property as per the architectural plans submitted to the relevant Authorities (building coefficient), whereas for the remaining square meters the standard VAT rate of 19% is imposed. In cases of large families (minimum of four children) the reduced VAT rate of 5% is applicable for the first 200 square meters increased by 15 square meters per each additional child over three children.

The Value Added Tax (Amendment) Law of 2016, which was recently passed by the Cyprus Parliament, ended the restriction of the imposition of the reduced rate of VAT to private residences up to 275 square meters.

It is essential to underline that in cases where the reduced VAT rate is granted, the residential property must be used as the applicant’s primary residence for a period of 10 years. A person who has been granted the reduced VAT rate, but ceases to use the property as his or her residence before the lapse of the 10-year period must notify the Commissioner of Taxation within 30 days of ceasing to use the property as a residence. The person must pay the difference in the VAT between the standard and reduced rates, attributable to the remaining period of 10 years.

Based on the recent VAT Amendment Law of 2016, buyers or owners who have been granted the reduced VAT rate for the acquisition of one residence, can acquire another residential property and re-apply for the reduced VAT rate, even if the 10-year period has not lapsed, so long as the applicant:

  • Ceases to use the property as his or her residence before the lapse of the 10-year period, and
  • Notifies the Commissioner of Taxation accordingly, and
  • Pays back to the Tax Department the difference in the VAT between the standard and reduced rates which were applicable at the time of the acquisition or construction of the first residence.

In all other cases, the applicant has the right to be granted the reduced VAT for another private residence after the lapse of 10 years.

Reduced VAT rate application

The reduced rate is imposed after obtaining a certified confirmation from the Commissioner of Taxation following the submission of a relevant application, along with supporting documentation. The application can be submitted by the buyer in person, or through the buyer’s legal representative. In their application eligible buyers should express their declaration that the property will be used as their primary and permanent residence in Cyprus and that they have not obtained any other property in Cyprus with the reduced VAT rate. In cases where the buyer is married, the spouse should also declare that has not acquired any other residence with the reduced VAT, as the reduced rate is granted to one property per married couple.

If the property is under construction (off-plan) the reduced VAT rate application can be submitted at any time during the construction of the property. In cases of purchasing new-build properties the application must be submitted before the delivery of the property to the buyer.

As per the provisions of the Article 46 (subsection 16) of the VAT Law, applicants who make a false statement to benefit from the reduced rate are obliged by law to pay the difference in the VAT between the standard and reduced rates. Moreover, the legislation provides that such persons are guilty of a criminal offence and, upon conviction, are liable to a fine, not exceeding twice the amount of the VAT due, or imprisonment up to 3 years, or may be subject to both sentences.

The content of this article intends to provide a general guide to the subject matter. Specialist advice should be sought on each particular case. For any further information, please contact Ms. Eleni Drakou.