Cyprus VAT on First Homes: Legislative Reform and Extension of Transitional Relief Until 31 December 2026

For many individuals and families in Cyprus, the purchase or construction of a primary residence represents one of the most significant financial commitments they will undertake. The acquisition of newly built residential property in Cyprus is subject to Value Added Tax (“VAT”), making the applicable VAT treatment a key factor in the overall cost of acquisition.

This article provides an overview of the recent legislative reforms to the Cyprus VAT framework applicable to primary residences, including the latest extension of the transitional provisions until 31 December 2026.

The Cyprus VAT framework governing the acquisition or construction of a primary residence has undergone significant reform in recent years. While the amendments introduced stricter eligibility criteria for the reduced VAT rate, transitional provisions were implemented to protect individuals who had already initiated the process under the previous regime.

Most recently, on 17 April 2026, the Cyprus Parliament approved a further extension of these transitional provisions, providing additional time for eligible taxpayers to benefit from the more favourable pre-existing rules in circumstances where administrative delays affected planning and building permit procedures.

The extension was published in the Official Gazette of the Republic of Cyprus (Issue No. 5089) on 24 April 2026.
The standard VAT rate in Cyprus is 19% and applies to the first sale of newly built properties, typically from a developer to a purchaser. For social policy reasons, the Cypriot Government allows the application of a reduced VAT rate of 5% for individuals acquiring a property to be used as their primary and permanent residence, significantly reducing the overall cost of acquisition.

The 2023 Legislative Amendments
The legislative amendments published on 16 June 2023 introduced stricter criteria for the application of the reduced 5% VAT rate on primary residences.
Under the framework introduced in 2023:
• the reduced VAT rate of 5% applies to the first 130 m² of the buildable residential area of a qualifying property;
• the maximum property value eligible for the reduced rate is €350,000;
• the total buildable residential area must not exceed 190 m²; and
• the total transaction value must not exceed €475,000.
For properties with a buildable area between 131 m² and 190 m² and a value of up to €475,000, a graduated VAT regime applies. Under this structure, the 5% VAT rate applies only to the first 130 m², while the remaining square metres are subject to the standard VAT rate of 19%.
Any property exceeding 190 m² in buildable area, or with a transaction value exceeding €475,000, is subject entirely to the standard VAT rate of 19%.
In practical terms, the post-2023 regime is significantly more restrictive and targeted than the previous framework, particularly in relation to larger or higher-value properties.

Transitional Provisions Under the Previous Regime
Alongside the introduction of the new legislation, transitional provisions were implemented in order to protect developments that had already commenced under the previous framework.
The transitional provisions originally applied where:
• a planning permit had already been issued; or
• an application for a planning permit had been submitted by 31 October 2023.
Where these conditions were satisfied, applicants could continue to benefit from the pre-2023 VAT regime, under which:
• the reduced VAT rate of 5% applies to the first 200 m² of the buildable area of the residence;
• no restriction applies to the total floor area of the property;
• no restriction applies to the value of the property;
• the date of completion of the construction is not relevant for eligibility purposes; and
• VAT at the standard rate of 19% applies only to any area exceeding 200 m².
The transitional provisions were originally scheduled to expire on 15 June 2026.

Extension Until 31 December 2026
In order to address delays arising from administrative procedures relating to planning and building permits, Parliament approved a further extension of the transitional provisions until 31 December 2026.
The extension applies where:
• a planning permit had been issued by 31 October 2023; or
• an application for a planning permit had been submitted by 31 October 2023,
and:
• the building permit was issued after 1 January 2025; or
• the building permit has not yet been issued by 31 December 2026.
In such cases, applicants may continue to benefit from the pre-2023 VAT regime until 31 December 2026.
However, where:
• the planning permit application was submitted by 31 October 2023; and
• the building permit was issued by 31 December 2024,
the transitional provisions will continue to apply only until 15 June 2026.
Position as from 1 January 2027
It is important to note that, as from 1 January 2027, all taxpayers will be subject exclusively to the new VAT regime introduced in 2023.
Accordingly:
• the pre-2023 reduced VAT scheme applicable to the first 200 m² will be permanently abolished;
• only the new 130 m² framework will apply; and
• larger or higher-value properties will be subject to VAT to a greater extent at the standard rate of 19%.
This change may substantially increase the final acquisition cost, particularly in relation to medium-sized and larger residential properties.
Practical Considerations
Before proceeding with the purchase or construction of a newly built residence, careful consideration should be given to:
• the date of submission of the planning permit application;
• the date of issuance of the planning permit;
• the date of issuance of the building permit;
• the total buildable area of the property; and
• the agreed purchase price.

These factors are critical in determining whether an individual qualifies for the reduced VAT rate and, if so, whether the individual may continue to benefit from the more favourable pre-2023 regime.

VAT constitutes a significant component of the overall cost of acquiring immovable property. In many cases, the financial difference between the applicable VAT regimes may amount to tens of thousands of euros. Proper planning and timely assessment of eligibility can therefore have a substantial impact on the overall investment.

From a practical perspective, individuals considering the acquisition or construction of a primary residence should assess eligibility for the transitional regime at the earliest possible stage. Careful legal and tax planning remains essential, particularly in light of the strict eligibility criteria and significant financial implications involved.

Conclusion
The application of the reduced 5% VAT rate for primary residences in Cyprus continues to represent a significant financial advantage for purchasers of newly constructed properties. However, the transitional framework permitting the application of the previous regime is approaching its conclusion.

Although the revised framework is more restrictive, the transitional provisions — now extended until 31 December 2026 in qualifying cases — continue to present an important opportunity for eligible applicants. Eligibility remains subject to strict statutory criteria and specific timeframes, making timely assessment and proper structuring of the transaction essential.

The content of this article is valid as at the date of publication and is intended solely as a general guide to the subject matter. It does not constitute legal or tax advice. Specific professional advice should be obtained before taking or refraining from taking any action based on its contents.
For further information or advice, please contact Esme Palas, Partner, Paphos Office, at telephone +357 26 030800 or via email at esme.palas@kyprianou.com