03.10.2023
Looking back at VAT on real estate, Giorgos Chrysochos , Group Director at Cyfield , explains how VAT is changing and how anyone interested can benefit.
In recent months, there has been a lot of discussion on the issue of introducing a reduced VAT rate for the purchase or construction of housing, and in June last year the Parliament voted for a corresponding amendment to the legislation. Until 1 November, when the new legislation comes into force, there will be a transition period and existing legislation will apply.
What does the legislation provide for until November?
, 2016, a reduced VAT rate of 5% applies to the first 200 sq.m of residential space under construction, determined based on the development rate.
According to new legal provisions that come into force on November 18, 2016, a person who has exercised the right to purchase housing with a reduced VAT rate of 5% has the right to exercise this right to purchase another place of residence every 10 years. It is clear that those who exercise the right to purchase their first home with reduced VAT will not be able to rent out the property for 10 years.
New framework for reducing VAT on real estate
Let’s now look at the new framework that will apply from 1 November 2023 regarding the application of reduced VAT on real estate.
The new legislation provides that VAT of 5% will be charged on the first 130 square meters of a house/apartment worth up to €350 thousand. At the same time, a gradual introduction of reduced VAT is provided. Especially for houses and apartments with an area of 131 sq.m. up to 190 sq.m. and for costs up to 475 thousand euros, VAT of 19% will be charged. That is, for the first 130 sq.m. and at a cost of €350 thousand, VAT will be 5%, and for the remaining 60 sq.m. , up to 190 sq.m. , VAT will increase to 19%.
For houses and apartments with an area of more than 190 sq.m. and for a cost of more than 475 thousand euros, 19% VAT will be charged on the first square meter and on the first cent. In addition, the transitional provisions included in the bill provide that a new regime will come into effect from November 1, that is, the imposition of VAT at the rate of 5% on 130 square meters.
The new regulation will not apply where planning permission has been obtained or an application for planning permission has been made within four months of the legislation coming into force.
It is to be noted that an insurance clause has also been included that upon receipt of town planning permission to the Tax Commissioner within three years from the date of entry into force of the proposed law.
Cyfield Group currently owns approximately 90 residential properties in various areas of Nicosia and Agios Athanasios Limassol , located at different stages of development, in accordance with current legislation (2016). However, it also owns several apartment buildings in Nicosia, Larnaca and Limassol, in which the same data (2016) for VAT applies.
