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The Reduced VAT Rate (5%) on Immovable Property in Cyprus

By October 9, 2020 No Comments

The Reduced VAT Rate (5%) on Immovable Property in Cyprus

Despite the fact that the standard VAT rate on immovable property in Cyprus is 19%, there are two situations where it can be reduced to only 5%. These situations generally concern the acquisition of a new property in Cyprus which will be used as the principal and permanent place of residence by the beneficiary. The first situation concerns the purchase or construction of a new dwelling in the Republic, while the second the purchase of a plot of land (building land) which will be then used for the construction of a permanent residence.

In relation to the first situation, the reduced VAT rate of 5% applies on the first 200 square meters of the buildable area of the dwelling. In cases of large families (minimum of four children) the total area of the dwelling is enhanced by 15 square meters per each additional child (over three children).

In relation to the second situation, an individual who buys a plot of land (building land) which is subject to the standard 19% VAT rate and intends to construct his permanent residence upon it, he is eligible to apply for a refund of the VAT paid for the purchase of the land to reduce it to an effective rate of 5%. Currently there are no restrictions, in the Tax Department’s Announcement, as to the size of the land.

 

Examples:

An individual purchases a new dwelling from a developer OR a dwelling which is under construction (off-plan). For the first 200 square meters of the dwelling, the reduced VAT rate of 5% applies, whereas for any additional square meters of the buildable area, the normal 19% VAT rate applies.

An individual acquires a plot of land (building land) and intends to erect his permanent residence upon it by using the services of a contractor. He is allowed both to apply for a refund of the VAT paid for the purchase of the plot to reduce it to an effective rate of 5% and to apply for a reduced VAT rate of 5% on the first 200 square meters of the buildable area of the dwelling.

 

Submission of application(s):

If the property is under construction (off-plan), the reduced VAT rate application can be submitted at any time during the construction of the dwelling. In cases of purchasing new-build properties, the application must be submitted before the first occupation of the dwelling by the buyer.

In relation to the purchase of a plot of land (building land) which will be used for the construction of a primary residence, the application for the VAT refund on the purchase of the plot must be submitted together with, or following, the application for the reduced 5% VAT rate on the construction of a primary residence.

 

Important Note:

In cases where the reduced VAT rate is granted, the residential property must be used as the applicant’s principal and permanent residence in Cyprus for a period of ten (10) years.

If the applicant/beneficiary ceases to use the dwelling as a principal place of residence earlier than ten (10) years he shall, within 30 days from the date he ceases to use it as a place of residence, notify the Commissioner and pay the difference between the amount of tax resulting from the application of the reduced rate (5%) and the standard rate as applicable on the date supply or construction of the dwelling (now 19%), which accounts for the period he has not used the dwelling for the purposes of residency, except in case of death of the beneficiary or in case of transfer by the beneficiary to any adult children.

 

Key takeaway:

Upon satisfying certain conditions, you can get a reduced VAT rate (5%) not only on the construction of the dwelling which will be your principal and permanent place of residence but also on the purchase of the plot that you bought for the purpose of erecting your dwelling.

 

The above text does not constitute legal advice and is for general informational purposes only.

 

Matheos Antoniou
Advocate
ANTONIOU & METAXA LLC

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