How to apply for VAT refund when buying a new building in Cyprus

Buying a new building in Cyprus can be a profitable investment, especially if you take advantage of the VAT (Value Added Tax) refund. In this article we will look at how to apply for a VAT refund on the purchase of a new building, what methods are available, when it applies, where to apply and what documents you need to collect.

Methods of claiming a VAT refund

So you have bought a new building and expect to pay 5% VAT instead of 19%. All the conditions are met: it is your first property in Cyprus for your own use, the area is not more than 190 m2 and the cost is not more than 475 thousand euros. In the end, VAT will indeed be 5%. However, it is not possible to register this option at the time of purchase. You must first pay the 19% VAT and start the refund procedure. This is very convenient if you are buying a new property in instalments (19% VAT will be on the first payment, but the developer is likely to meet the buyer), and a little expensive if you pay the whole amount at once. Important: We apply for a VAT refund before we move into the property.

There are several ways of claiming a VAT refund when buying a new build property:

1. Apply to the Cyprus Revenue Authority. This is the main method of obtaining a VAT refund. After signing the purchase contract and paying the stamp duty, an application must be made to the VAT department of the local tax office.
2. Through the developer. Some developers offer assistance with the VAT refund paperwork, which can make the process much easier for the buyer.
3. With the help of a law firm. Using lawyers who specialise in property can be a convenient option, especially if you are unfamiliar with local laws and procedures.

When VAT refunds apply

VAT refunds are available in the following cases:

1. Buying your first property. If you are buying your first property in Cyprus, you may be eligible for a VAT refund if the other conditions are met (limitation of the floor area to 170 m2 (or 190 m2 with partial metre conversion that exceeds the requirement) and limitation of the value to €350,000 (or €475,000 with tax conversion on the amount exceeding the requirement). The VAT department will check whether these applicants have previously applied for reduced VAT.
2. New construction. The VAT refund is only available for the purchase of a new property from a property developer. Secondary properties are not subject to VAT.
3. Primary residence. The property must be your main residence for at least 10 years and must not be an investment property. If the buyer changes his mind before the deadline, you can recalculate the tax, but not for all the years, just the ones he missed. Move again!

Where to apply

To apply for a VAT refund, you should contact your local tax office or use the services of lawyers and accountants who can help you apply and collect the necessary documents. To apply for a VAT refund, you will need to collect the following documents

1. A completed application form. The form can be obtained from the tax office or downloaded from their official website.
2. A copy of the purchase contract. This confirms the purchase of a new property.
3. Payment receipts. Confirming payment of the cost of the property.
4. Documents proving your identity. Passport or identity card.
5. Residence registration documents. Confirming that the property will be your main residence. Water or electricity bills.
6. First purchase certificate. Confirms that this is your first property purchase in Cyprus. This is not just any paper or certificate, the VAT Department simply checks whether applicants have previously applied for the reduced 5% VAT.

Step-by-step guide to processing a VAT refund:

1. Collect documents. Collect all the necessary documents, including a completed claim form.
2. Submit the claim form. Submit the claim yourself via the Revenue portal or via a solicitor.
3. Review the application. The tax office will review your application and check that the documents provided are complete.
4. Wait for a decision. It may take several weeks to process your claim.
5. Receiving a refund. If approved by the Inland Revenue, the VAT will be recalculated in the developer's accounts. The difference in VAT will be refunded to the purchaser's bank account. The timeframe for the refund can vary, but is usually several months.
6. Check the bank account. Check that the bank account provided on the application form has sufficient funds to receive the refund and that it is valid.
7. Confirmation of refund. The Inland Revenue will notify you of the decision and approximately when the refund is due.

So it's important to remember that the new rules require you to apply for reduced VAT specifically through the tax portal. Once the VAT department has checked the electricity consumption, whether the property is a new construction and that the applicant has not previously used the tax portal application for this purpose, it will give its approval and then recalculate the VAT in the builder's accounts. In addition, both husband and wife must open a TIC number in Cyprus. It is therefore not possible to purchase two new buildings with 5% VAT.

Processing a VAT refund on the purchase of a new build property in Cyprus can significantly reduce your costs and make the purchase more favourable. The process requires the collection and submission of a number of documents and the fulfilment of certain conditions, such as buying your first property and using it as your main residence. Take the help of an experienced estate agent, property developer or legal firm to simplify the process and ensure that you meet all the requirements for a refund.

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