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 1st, 2004 is VAT exempt. However, this does not mean that purchasing resale properties is more lucrative but rather the opposite as described below.
All the prices on our web site are presented in the following format - "200 000 + VAT" or "300 000, VAT exempt"
VAT rate in the Republic of Cyprus is 19%.
On June 8th 2012, Law №73(1)/2012 of the Republic of Cyprus came into effect, revising tax legislation. According to the Law when a new property is purchased, a reduced VAT rate of 5% will be charged instead of the current rate of 19% under certain conditions. Thus, a buyer is offered an opportunity to save. On November 18th, 2016, the Law №119 (I) / 2016 was published with further amendments which are reflected below.
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).
The reduced rate of 5% applies to the first 200 sq.m. of residential property, according to the architectural plans, approved by the official authorities in the Republic of Cyprus. The calculation is proportional to the area of the property (see an example below).
Note: On November 18th, 2016 previous condition was abolished. In order for a property to qualify for the reduced rate, it had to be below 275 sq.m. There is no such limitation at present: the reduced rate of 5% applies to the first 200 sq.m. regardless of the total size of a property.
Example of VAT calculation
For instance, the area of the property is 350 sq.m. and its price - EUR1.500.000
The following VAT rate will apply
- 1.500.000 x 5% x 200/350 = 42.857, plus
- 1.500.000 x 19% x 150/350 = 122.143
The amount of VAT in this example is 165.000 and the total price of the property - EUR1.665.000.
If a buyer has purchased new property, paid VAT and did not use it, in case of a subsequent sale he/she has the right to receive the full amount of previously paid VAT back from the Tax authorities. The next buyer pays VAT according to the current regulation.
An indication suggesting that the property has been used is the consumption rate of water and electricity, use of household appliances, sanitary ware and so on.
If the applicant, who has been granted a reduced VAT rate, ceases to use the property as his first and primary place of 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 that was in effect at the time of signing the contract, except for the cases of death of the applicant or transfer of the property to his adult child, provided that the adult child did not use a discounted VAT rate previously.
So, for instance, the eligible person has purchased an apartment for €600.000 + 5% VAT and sells it in 3 years from taking possession. Then he has to pay the 14% of VAT calculated for the term of 7 years:
€600.000 x 5% = €30.000 VAT - was initially paid.
€600.000 x 19% = €114.000 VAT - VAT that had to be paid at the full rate.
€114.000 – €30.000 = €84.000 – amount of saving
€84.000 x 7/10 = €58.800 - 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 €84.000 as in the above example, in full.
List of documents to be submitted for obtaining reduced VAT rate
An applicant applying for a reduced VAT rate submits an application along with a declaration stating that he/she has purchased no other property in Cyprus using the reduced VAT rate to VAT Department. When the applicant is married, a spouse shall also submit an application along with a declaration. The application shall be supported by the following documents:
- Contract of sale for the property
- Copy of passport
- Marriage certificate Copy of spouse’s passport
- Architectural plans for the property
- Certified copy of planning permit for construction
- Declaration certifying the appropriate size of the immovable property is endorsed by an architect or a civil engineer
- Documentary evidence that the applicant uses the property as his/her place of residence in Cyprus such as:
- Copies of electricity bills
- Copies of water bills
- Copies of phone bills
- Copies of local and municipal tax bills
- Any other documents certifying that this property is used by the applicant for its intended purpose as a main place of residence in Cyprus.
The above listed documents shall be submitted within six months from taking possession by the applicant and form a part of the Application process for using a reduced VAT rate.
Comments on Reduced VAT Rate Law
According to the Reduced VAT Rate Law, 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 the most part 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.
To be entitled to pay the reduced VAT rate the Applicant shall submit utility bills (see the section above). Does it imply that the customer shall first purchase property having paid VAT at 19% rate, live in it for several months and only then, upon receiving the first utility bills, submit documents for the reduced rate and to partially refund the previously paid VAT?
The answer is no, it does not. The customer can buy property at once having paid VAT at 5% rate. As far as utility bills are concerned, they may be submitted to VAT Department at a later period (within 6 months) upon their receipt.
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 few weeks. Upon approval of the reduced rate the Customer pays the remaining 70% of the apartment value – €140.000 plus the remaining VAT subject to payment. 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 euro). A few months after the acquisition upon receipt of the first utility bills the Customer submits their copies to VAT Department.
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