Proposal for VAT legislation concerning the new buildings and apartments

When purchasing a new property in Cyprus, a buyer pays 19% VAT, which is a standard rate. However, for a purchase of a secondary property or a new one from developer, which has construction permit issued before 1st of May 2004 – the buyer is not obliged to pay VAT. The enactment of the Law № 73 (1) / 2012 also allows for a reduced VAT rate of 5% for new properties under 275 m2.

The EU VAT directive of 2017/541 allows member states to apply reduced VAT rates to new buildings, even if they exceed 275 m2 or have different parameters. Cyprus is still in the process of enacting this directive, with a proposal for a new law put forward in March, and a deadline granted by the European Commission in January. The proposal was just voted, but we need to wait for the implementation of the law.

The scope of the proposed legislation is as follows:

1) For new buildings up to 220 m2 and value up to €350.000:

– 5% VAT on the value of the 170 m2 of the building
-19% VAT on the value of the rest square meters of the building

2) For new apartments up to 110 m2 and value up to €200.000:

–  5% VAT on the value of the 90 m2 of the apartment
-19% VAT on the value of the rest square meters of the apartment

3) For the new buildings and apartments that do not satisfy the above parameters, 19% VAT will be applicable on the total value of the project.

Although the proposal for the new legislation has been voted, the Ministry has just discussed the possible compromises regarding the imposition of reduced VAT, focusing on increasing the property’s value rather than complying with size criteria. It is not clear yet when the amendments will be considered and the time framework for the enactment of the relevant law. We are monitoring the situation on the daily basis.