17.06.2024
Understanding Cyprus VAT rules is essential for anyone involved in real estate transactions or short-term rentals. This article provides a detailed overview of the VAT rules that apply when purchasing property, managing short-term lettings and using the reduced VAT rate for first-time buyers.
VAT on purchases
When purchasing property in Cyprus, the standard VAT rate is 19% of the sales price. This rate applies to the acquisition of new property, which is defined as property being sold for the first time after it has been built or substantially renovated. VAT must be paid by the buyer and is usually included in the purchase price of the property and divided into each payment.
Cyprus offers a reduced VAT rate of 5% for first-time buyers, subject to certain conditions:
- The property must be used by the buyer as his primary and permanent residence.
- The reduced rate applied to the first 200 sq. m of covered area of the property. Any area exceeding 200 sq. m, was subject to a standard VAT rate of 19%. However, from June 2023, the Cyprus authorities have made changes to the criteria for reduced VAT for main residential properties. According to the new rules, a reduced VAT rate of 5% applies to the first 130 square meters. m of primary residential real estate, if its value is up to 350,000 euros, and the total value of the transaction does not exceed 475,000 euros.
- The preferential rate is available to citizens and residents of Cyprus, as well as non-EU citizens intending to use the property as their main place of residence in the Republic.
To qualify for the reduced VAT, buyers must apply to the Tax Department, providing documentation confirming that the property will be their main residence. This process involves several steps, including obtaining confirmation from the local municipality or other relevant authorities.
From May 27, you can apply for a preferential 5% VAT only electronically through the Tax digital portal For All (TFA or Taxes For All “). You can also receive the relevant certificate only after completing the application process through the Tax website For All .
VAT on short-term rentals
Short-term rentals, such as those available on platforms like Airbnb , are subject to 9% VAT. This rate applies to rental income from properties let for a period of less than 30 days.
Property owners who rent out residential property for short-term rentals must comply with a number of VAT obligations:
- Owners must register for VAT if their annual rental income exceeds the registration threshold, which is currently set at €15,600. Registration involves submitting the necessary forms to the Tax Department and obtaining a VAT number.
- Once registered, property owners are required to charge 9% VAT on their rental income. This VAT must be clearly stated on rental invoices or receipts issued to tenants.
- Property owners must file VAT returns regularly, usually quarterly. These returns must include all rental income and the corresponding VAT collected. Failure to file returns or pay any VAT due may result in penalties and interest charges.
- Maintaining accurate records of all rental transactions includes keeping copies of lease agreements, invoices, receipts and any correspondence with tenants. Proper record keeping ensures compliance with tax rules and facilitates the VAT return filing process.
Although short-term lettings can be a lucrative business, understanding and complying with VAT obligations is essential to avoiding legal problems.
The 9% VAT rate is relatively low compared to other services, making short-term rentals an attractive option for property owners. However, the administrative burden of VAT registration and filing can be complex, particularly for individuals who manage multiple properties or have significant rental income.
To take advantage of the reduced VAT rate or to comply with VAT rules for short-term rentals, property owners and buyers must follow certain procedures and maintain proper documentation. It includes:
- Applications for VAT reduction. You must submit the necessary forms and documentation to the Tax Department to qualify for the 5% VAT rate.
- Registration of VAT payer for rent. It is necessary to register with the tax department if rental income exceeds the threshold and ensure that VAT is collected and remitted correctly.
- Maintaining detailed records of all transactions, including sales contracts, leases and VAT returns.
- Understanding Cyprus VAT rules is crucial for buyers and short-term rental property owners.
- Using a reduced VAT rate for first-time buyers of residential property can lead to significant financial savings.
- Ensuring compliance with VAT rules when purchasing real estate prevents legal complications and fines from arising.
- For short-term rentals, registering for VAT and complying with the 9% VAT rate is essential to maintaining a legal business and maximizing profitability.
Overall, compliance with VAT rules not only ensures compliance with the law, but also increases the financial viability of property investments in Cyprus.
For a comprehensive review, personalized advice and an understanding of the complexities of VAT rules, it is recommended that you consult a tax professional or consult official resources such as the Cyprus Tax Department website and the Cyprus VAT Law as this article provides a more general interpretation of the laws and regulations.
