VAT Refund on the Purchase of New Property in Cyprus

Buying property in Cyprus is not only an investment in the future but also an opportunity to reduce costs through a VAT refund. Many buyers of new developments are eligible for a tax refund, and while the process requires some effort, it can significantly lower the overall cost of the purchase. In this article, we will explain how to correctly apply for a VAT refund and take full advantage of this mechanism.

Conditions for Receiving a VAT Refund

When purchasing your first property in Cyprus for personal residence, you can claim a VAT refund, reducing the standard 19% VAT rate to 5%. However, certain strict conditions must be met:

• The property must be your first purchase in Cyprus.
• The total area must not exceed 190 m².
• The property price must not exceed 475,000 euros.
• The property must be used as the primary residence for at least 10 years.

If you meet these criteria, you can apply for a VAT refund. However, it’s important to note that the refund process does not happen automatically. You must first pay the 19% VAT, after which you can initiate the refund process.

Ways to Apply for a VAT Refund

There are several ways to apply for a VAT refund in Cyprus, each with its own features and details to consider.

1. Through the Cyprus Tax Department: This is the main and most common way to apply for a refund. After purchasing the property and paying the stamp duty, you must file a VAT refund request with the tax department. It’s important to submit the documents without delay to expedite the process.
2. Through the Developer: Many Cypriot developers assist buyers in applying for a VAT refund, which can simplify the task, as they are familiar with the process and can speed it up.
3. With Legal Assistance: If you are unsure about how to proceed with the VAT refund, you can hire lawyers specializing in real estate. They can help you collect the necessary documents and submit the application.

Documents Required for VAT Refund

To claim the VAT refund, you’ll need to gather a set of documents, including:

• A completed application form, available on the Cyprus Tax Department’s website.
• A copy of the sale-purchase contract for the property.
• Receipts proving payment for the property.
• Identity documents (passport or ID card).
• Proof that the purchased property is your primary residence (utility bill receipts).
• Documentation confirming that this is your first property purchase in Cyprus (the tax department will verify if you have previously applied for a reduced VAT rate).

Once you have collected these documents, you need to submit the application either directly to the tax department or through intermediaries such as lawyers or developers.

VAT Refund Process

The VAT refund process involves several steps:

1. Gathering Documents: Start by preparing a full set of documents. The sooner you have everything in place, the sooner the refund process can begin.
2. Submitting the Application: You can submit the VAT refund application in person at the tax department or through the online portal of the tax service. If you are using a lawyer’s services, they will handle this for you.
3. Application Review: The tax department will review your application and documents. This can take several weeks, so it’s important to apply as soon as possible after the purchase.
4. Waiting for a Decision: After reviewing the application, the tax service will decide on the refund. If all conditions are met, the VAT refund will be approved. This process can take several months.
5. Receiving the Refund: Once the refund is approved, you will receive the difference between the 19% VAT paid and the reduced 5% VAT rate in your bank account. Refund times vary, but the process generally takes a few months.

Important Points to Consider

It’s essential to remember that the VAT refund is only available if the property is used as a primary residence. If you decide to sell the property or use it for investment purposes before the 10-year period ends, the VAT will need to be recalculated for the unused period. Therefore, it’s crucial to carefully plan for the future when purchasing a new property.

Additionally, if the property is purchased by a married couple, both spouses must submit separate VAT refund applications. It is also necessary to obtain tax identification codes (TIC) for both spouses in advance, as this is a mandatory requirement for the refund application.

When VAT Refund Is Not Possible

Not all property purchases in Cyprus qualify for a VAT refund. Here are a few cases when a VAT refund is not possible:

• Purchasing a resale property: If you are buying a property from a previous owner, VAT is not applicable, and no refund can be claimed.
• Investment properties: If the property is intended to be rented out or used for commercial purposes, a VAT refund will not be available.
• Second-time purchase: If you have already claimed a VAT refund on a previous property purchase, you won’t be eligible for another refund. The refund is only available for the first property intended for personal use.

Applying for a VAT refund when purchasing new property in Cyprus can be a valuable opportunity to reduce the overall cost of acquiring real estate. To take advantage of this, it is important to meet all requirements, gather the correct documents, and follow the correct procedure. While the process may seem complex, with the help of lawyers or developers, it can be managed efficiently and swiftly. Properly completing the VAT refund application can save you a significant amount, making property purchases in Cyprus even more financially attractive.