VAT on Property Purchases in Cyprus

When considering purchasing property in Cyprus, it’s important to remember to include VAT in your budget. While paying VAT is almost inevitable when buying new builds, there are some nuances that can help you qualify for a reduced rate. Learn more about everything related to VAT on property in Cyprus in this article.

VAT on Property Purchases in Cyprus

Buying property in Cyprus is subject to Value Added Tax (VAT). However, there are exceptions to this rule: purchasing any resale property is exempt from VAT, as is property with a building permit issued before May 1, 2004. (However, when buying resale property, you will need to pay a transfer fee instead.)

Renting out property, provided it is under a lease agreement without the option to purchase, is also exempt from VAT.

VAT Rates in Cyprus

The standard VAT rate in Cyprus is 19%, but there are several possible rates:

• Zero rate: Applies to resale properties and new builds with a building permit issued before May 1, 2004.
• Standard rate: 19%.
• Reduced rate: Available under certain conditions.

Let’s delve into the specifics of obtaining a reduced VAT rate when purchasing property in Cyprus.

Reduced VAT on Property Purchases in Cyprus

In 2012, Cyprus introduced a reduced VAT rate of 5% on property purchases, applicable to new builds. To qualify for this reduced rate, certain conditions must be met:

• The buyer must be at least 18 years old.
• The reduced rate applies only to individuals (natural persons).
• The benefit is one-time and only applies to the first home purchase.
• The property must be purchased for personal use, without the intent to generate rental income. It must be the buyer’s primary residence, and renting it out within 10 years is not permitted.
• The reduced VAT rate only applies to the first 200 square meters of the property.

It’s important to note that while the term “primary residence” doesn’t restrict you from leaving the country, if the property purchased with the reduced VAT rate is sold or rented out within 10 years, the buyer will be required to repay the 14% tax savings to the Cypriot government.

Applying for the Reduced VAT Rate

To benefit from the reduced VAT rate on property in Cyprus, an application must be submitted to the relevant department. You will need to provide documentation confirming that this is your first time participating in the program. The same documentation will be required for your spouse.

To apply for the reduced rate, you’ll need the following documents:

• Purchase/sale agreement for the property.
• Copies of the applicant’s and spouse’s passports.
• Marriage certificate.
• Architectural plans of the property.
• Documents confirming the property’s total area.
• Copies of utility bills.

The complete set of documents must be submitted to the VAT department within six months of receiving them. Additional documents may be required depending on the situation (e.g., building permit).

If the property is purchased without being used (which requires verification), it is possible to reclaim the VAT on the property in Cyprus upon resale.

New Legislative Changes for Reduced VAT in 2023-2024

On June 8, 2023, the Cypriot Parliament passed a law establishing a reduced VAT rate of 5% for primary residences under certain conditions. This change is intended to align with European Union regulations following criticism from the European Commission, which pointed out Cyprus’s incorrect application of VAT rules for housing.

Key points of this law include:

• The reduced VAT rate applies to the first 130 square meters of a primary residence (house or apartment) valued at up to €350,000. This change reduces the area eligible for the reduced rate from 200 m² to 130 m².
• The law provides for a transitional period. For four months from the date the law comes into effect, the proposed rules will not apply to cases where the building permit was obtained, or the application was submitted before the law came into force.

These changes are a response to the European Commission’s criticism regarding Cyprus’s application of the 5% reduced VAT rate for primary residences without any limitations on area or value.

Are you interested in purchasing property in Cyprus and taking advantage of reduced VAT conditions? You can always reach out to our real estate specialists for a consultation!