VAT and property tax in Cyprus

Acquisition of a new property in Cyprus is subject to VAT (Value Added Tax). Acquisition of a resale property as well as a new property, planning permit for which was obtained before May 1^st, 2004 is VAT exempt (such property is subject to another tax - Transfer Fee)

VAT rate in the Republic of Cyprus is 19%. Cypriot law provides for the use of a reduced rate of 5% for the purchase of real estate, subject to certain conditions. Thus, the buyer of new real estate is given the opportunity to save significantly.

Property and applicant requirements for obtaining a reduced VAT rate

Reduced VAT rate is granted when the following requirements are fulfilled:

• Only applies to individuals (not companies), 18 years of age and over.
• The purchased property shall be the applicant’s main place of residence in the Republic of Cyprus (during his stay in Cyprus).
• The applicant shall have no other property purchased in Cyprus previously at the reduced VAT rate.
• The property shall be used solely for one’s own use and not for profit (such as from renting).
• At the time of approval of the reduced VAT rate, the property should not be used (no one should live in it, use water and electricity).

The reduced rate of 5%  applies to the first €350.000 of the property value, while its total value should not exceed €475.000. The reduced rate also applies to the first 130 sq.m. real estate area, while its area should not exceed 190 sq.m.

Let's look at examples:

• Apartment with an area of 100 sq.m. and a price of €300.000 - the VAT rate is 5%.
• House with an area of 200 sq.m. and no matter what the price - the VAT rate is 19%.
• House worth €500.000 and no matter what area - the VAT rate is 19%.
• Apartment with an area of 120 sq.m. and a price of €400.000 - €350.000 are subject to 5% VAT, the remaining €50.000 - 19% VAT.
• House with an area of 140 sq.m. and a price of €475.000 - the amount calculated according to the formula 475.000 x (130/140) x (350/475) = €325.000 is taxed at a rate of 5%. The remaining amount of 475.000 - 325.000 = €150.000 is taxed at a rate of 19%.

These area and price rules do not apply for buildings for which a planning permit has been obtained or an application for such permit has been submitted until 31^st of October 2023, and the relevant application for the 5% VAT rate has been submitted within 3 years from the date of the new law (i.e. by 15/06/2026). For this case, a different rule applies, namely: a reduced rate of 5% applies to the first 200 sq.m. area of real estate, regardless of its price and area.
It is easy to understand that in the coming years, in most cases, this, another rule, beneficial for real estate buyers, will apply.

If the applicant, who has been granted a reduced VAT rate, ceases to use the property as his main residence in Cyprus earlier than 10 years from the date of taking possession (in case of a sale or rent), he is obliged to notify the Department of VAT within  30 days and to proportionally pay the difference between the reduced and the standard VAT rates.

For instance, the eligible person has purchased an apartment for €300.000 + 5% VAT and sells it in 3 years of taking possession. Then he has to pay the 14% of VAT calculated for the term of 7 years:

€300.000 x 5% = €15.000 VAT - was initially paid.    

€300.000 x 19% = €57.000 VAT  - VAT that had to be paid at the full rate.

€57.000 – €15.000 = €42.000 – amount of saving

€42.000 x 7/10 = €29.400 - the amount that the applicant will be required to reimburse to the tax authorities, if he decides to sell his property after 3 years. Thus, 3 years from 10 are "amortized", since the applicant used the property for 3 years and for the remaining 7 years out of 10 there is an obligation to pay the difference - hence the 7/10 ratio in this example.

In case the applicant, who has paid reduced VAT, does not sell or rent his property, but rather uses it as his private residence for not less than 10 years, then he enjoys the economy of €42.000 as in the above example, in full.

Comments on Reduced VAT Rate Law

Comment 1

According to the Reduced VAT Rate Law, the purchased property shall be the applicant’s main place of residence in the Republic of Cyprus. Does it imply that the Applicant will have to reside in the purchased property for most of his/her time?

The answer is no, it does not. The Applicant can purchase property for spending vacations in Cyprus and he/she will still be entitled to pay the reduced VAT rate. The point is that during his/her visits to Cyprus (no matter how infrequent) the Applicant shall stay in that very property.

Comment 2

Should the customer first buy the property by paying VAT at a rate of 19%, and only then, having received a reduced VAT rate, submit documents for a refund of a part (14%) of the previously paid VAT?

The answer is no, should not. The customer can buy property at once having paid VAT at 5% rate.

Here is the above statement illustrated by an example. Suppose a customer purchases a finished apartment for €200.000 plus VAT. Simultaneously with signing of the contract the customer pays 30% deposit equal to €60.000 plus VAT at 19% rate (VAT amount will make up €11.400). The contract is deposited at the Land District Office (detailed information regarding this procedure is available on page Legal Issues). Immediately after this an Application for reduced VAT rate is submitted that will be approved within a month's time. Upon approval of the reduced rate the Customer pays the remaining 70% of the apartment value – €140.000 plus the remaining VAT. VAT (5% of €200.000) comprises €10.000. However, the customer has already previously paid VAT for the amount of €11.400. Thus the second payment will comprise only €138.600 (= €140.000 – 1.400).