Purchasing new real estate in Cyprus directly from the developer is subject to value added tax (VAT). As of 2026, the standard rate is 19%, but many buyers can significantly reduce costs by taking advantage of a preferential rate of 5%. This government support measure is aimed at assisting those purchasing their first home, but it requires strict adherence to a number of conditions and a thorough understanding of current area and price limits.
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Key criteria for obtaining VAT relief
To qualify for the 5% rate, the buyer must meet several basic requirements. First, the exemption is only available to individuals aged 18 and over. Legal entities always pay the full 19% rate. Second, the property must be the applicant’s primary and permanent residence in Cyprus for the next 10 years. Third, the buyer must not have previously acquired other property in Cyprus using the same exemption. It is important to note that in 2026, this rule applies to both EU and non-EU citizens.
Area and cost limits in 2026
Cyprus law clearly defines the portion of a property’s area eligible for the reduced rate. According to the current regulations from 2026, the 5% rate applies only to the first 130 square meters of the property’s living area. However, the total area of the property must not exceed 190 square meters. If you purchase a spacious villa or penthouse whose area exceeds this limit, you automatically lose your right to the reduced rate and are required to pay 19% VAT on the entire property. There is also a price threshold: the reduced rate applies if the total transaction price does not exceed €475,000. For properties over this amount, the tax calculation is more complex, and the reduced rate is assessed on a case-by-case basis.
Application procedure and required documents
The process of obtaining a 5% VAT permit begins with the submission of a formal application to the Cyprus Tax Department. The application must be accompanied by a package of documents, including a sales contract, architectural plans of the property, proof of the absence of other properties with reduced VAT, and documents confirming the intention to use the property as a primary residence (e.g., utility bills in the applicant’s name after construction is completed). Since 2026, applications have been submitted through the tax office’s digital platform, reducing the processing time to just a few working weeks.
Residency obligation and the 10-year rule
The 5% VAT exemption in Cyprus is targeted: the state “subsidizes” your residence, not investment speculation. Therefore, the buyer is obligated to use the property as a primary residence for 10 years. If you decide to sell the property or rent it out before this period, you will be required to repay the difference between the reduced VAT rate and the standard VAT rate (14%) prorated for the remaining period. The Tax Department conducts regular spot checks to verify the actual use of properties purchased at the reduced rate.
VAT on additional costs and furnishings
Buyers in 2026 should remember that the preferential 5% rate applies exclusively to the property price itself. If the developer offers you an additional furniture package, household appliances, or landscaping services, either as a separate clause in the contract or as part of an additional agreement, these items will be subject to the standard VAT rate of 19%. To optimize your budget, experts recommend discussing the structure of the purchase and sale agreement with a lawyer in advance to clearly delineate the taxable base and avoid accidental overpayments.
Financial benefits and budget planning
Applying a 5% rate instead of 19% yields significant savings, which, for a property valued at €350,000, could amount to approximately €49,000. These funds can be used for interior finishing, furnishings, or landscaping. Given the strictness of Cyprus tax legislation in 2026, it is crucial to conduct a preliminary audit of the selected property for compliance with all area and price limits during the booking stage to ensure approval from the tax authorities.
