01.06.2023
The Commission of the European Union has called on Cyprus to bring its national legislation into line with EU rules on value added tax (VAT) for housing purchased or built in Cyprus.
According to the application, Cyprus should accept a reduced VAT rate of 5% on the first 200m2 of housing used by the owner as the main and permanent residence without any other restrictions.
The VAT Directive (Council Directive 2006/112/EC) allows EU Member States to apply a reduced VAT rate on housing as part of social policy. However, the wide scope of application of Cypriot law and its lack of restrictions indicate that this measure goes beyond that purpose.
In particular, the reduced rate applies regardless of income, property, economic status of the owner and resident family members, and the maximum total floor area of the dwelling concerned.
Consequently, the Commission considers that Cyprus has failed to comply with its obligations under the VAT Directive. Now Cyprus needs to eliminate the shortcomings identified in the reasoned opinion so that the case is not referred to the Court of Justice of the European Union.
