A meeting of the Council of Ministers was held at the Presidential Palace in Nicosia, attended by President of Cyprus Nicos Anastasiades.
During the event, the Council of Ministers of the Republic of Cyprus approved amendments to the law on VAT rate on the Purchase Land for Construction of a New Dwelling in the Republic".
According to the innovations, parents or guardians who want to purchase land for residential development for their adult children will now be granted the right to VAT refund in the amount of 14% if the property falls under a 5% reduced VAT rate. In particular, the house that will be built on the land plot should be the first and main place of residence of the buyer's child.
Thus, the main criteria for VAT refund are:
- The house to be built on the land is subject to a reduced VAT rate (5%).
- The transferred land must be subject to the eighth annex to the VAT Act (N95 (I) 2000) and be subject to value added tax.
Amendments to the legislation entered into force from the date of adoption of the Resolution of the Council of Ministers. A request for a refund can be made through the Declaration of Liability for VAT Refund, which is posted on the website of the Cyprus Tax Department.
The value added tax (VAT) is a one-time payment made by the buyer of new real estate and land plots. The standard VAT on land and the purchase of new real estate in Cyprus is 19%.
The Cyprus land fund was not subject to VAT. However, due to Cyprus' obligation to comply with the EU Directive 2006/112/EC on the common VAT system, the VAT Law 157 (I)/2017 was adopted. The law introduced VAT at the standard rate of 19% for the purchase of undeveloped land plots for development. Now the tax is applied in cases when the purchase is carried out for the construction of one or more construction units or for commercial purposes. Agricultural land, as well as land in areas that are not intended for development, for example, archaeological zones or protected natural areas, are excluded from VAT taxation.
Recently, the Cabinet of Ministers of Cyprus decided to provide VAT refunds to persons who purchased land for the construction of personal main and permanent housing. In this case, the amount of VAT on land acquisition is actually reduced from 19% to an effective rate of 5%. Since the EU Directive and the national VAT Law initially do not allow a preferential tariff for land taxation, it was decided to reimburse in order to reduce the rate to the level of 5%. Thus, persons entitled to such compensation will be refunded the difference of 14%, as a result, the real share of the tax payment will actually leave 5% (19%-14%). When buying land plots with a different purpose in Cyprus, the standard VAT rate of 19% is applied.
Thanks to the decision of the Council of Ministers, parents and guardians will now be able to count on reduced VAT.
It is noteworthy that VAT refund will be provided to the applicant only after the actual relocation of the child to a permanent place of residence. In addition, in the future, the child will have to provide evidence (copies of water or electricity bills) confirming that the built property is really used as his main and permanent place of residence.
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