23.09.2022
The deputies are looking for a compromise on reduced VAT for the first houses after the European Commission brought proceedings against Cyprus over the discount.
Greens MP Stavros Papadouris introduced a bill that would reduce VAT by 5% on the first 180 sq. m. m of the house, the area of which does not exceed 220 sq.
A European Union directive to downsize homes eligible for a lower 5% VAT caused an uproar in parliament and real estate stakeholders as they argued it would jeopardize the recovery of the construction sector and the broader economy.
The EU directive requires Member States to introduce legislation on a 5% VAT rate on houses up to 140 square meters.
In Cyprus, a reduced VAT rate of 5% applies to houses up to 200 sq.m. The Treasury bill hangs in the hallways of the House of Representatives for months as MPs and industry representatives resist it. The Cabinet of Ministers has already agreed with the directive and needs the approval of Parliament.
According to reports, houses with an area of more than 170 square meters. m under the proposed bill will be subject to the standard VAT rate of 19% for each square meter in excess of the established limit. But a house larger than 220 square meters will not be eligible for the lower VAT rate of 5%, but will instead incur 19% for the entire project. This is currently applicable for homes larger than 275 square meters.
For apartments, only the first 90 square meters of a 110 square meter apartment will be taxed at a rate of 5% VAT. However, the directive allows states to apply a reduced VAT rate on homes if it would serve social policies such as promoting affordable housing.
Cyprus may fall under the sanctions of Brussels, since in the summer of 2021 a violation procedure was launched against the republic. The EU claims it has evidence to show that the government did not use what is considered a social contingency measure in a targeted manner.
In a warning letter, the European Commission made it clear that third-country nationals eyeing the Cypriot passport under its now defunct citizenship by investment scheme benefited from the measure.
Nicosia has also come under scrutiny after a report from the Accounts Chamber claimed that current legislation was violated by foreign investors eyeing the golden passport, costing the state millions in unpaid taxes.
According to the data received, the republic suffered losses in the amount of 200 million euros from foreign investors who naturalized as Cypriots.
Foreign investors eyeing the Cypriot passport have taken advantage of loopholes in buying luxury apartments in skyscrapers, making do with a low 5% VAT.
