09.06.2023
Nicosia is hoping to persuade Brussels to end its lawsuit against Cyprus after MPs approved a 5% VAT law for small first homes that is not in line with an EU directive.
The law on a reduced VAT rate of 5% applied to the first 130 sq . m of housing, whether it be a house or an apartment, worth 350,000 euros, was adopted with the support of 42 deputies, with one abstention.
According to the new law, for houses / apartments with an area of 131-190 sq. m worth 475.000 euros will be charged VAT at a rate of 19% for each square meter over 130 square meters. If the house has a built-up area of 140 sq. m, excluding verandas and parking, then 10 additional square meters will be taxed at a rate of 19% VAT. This would mean that the total VAT charged on housing is 5.1%.
According to the Land Registry, the offer covers about 76% of transactions made in 2022. The law includes a provision to reduce VAT on the first 190 sq. m of built-up area for people with disabilities. It also provides for a transitional period during which the proposed rules will not apply in cases where a town planning permit has been obtained or an application has been made within four months of the effective date of the law.
The deputies passed the law just a few days after the Commission sent Nicosia a reasoned opinion on the failure to properly comply with EU VAT rules in relation to housing purchased or built in Cyprus.
The reasoned opinion is the second stage of the infringement procedure, which Brussels opened in July 2021. It states that a reduced 5% VAT is allowed in Cyprus for the first 200 sq. m of housing used by the owner as the main place of residence, without any other restrictions.
Cristiana Erotokritou, DIKO MP and head of the House Finance Committee, said last week that the EU Commission expects Cyprus to set the bar for a 5% VAT reduction on the first 110 sqm.
