The Cyprus Tax Department is cracking down on cases of abuse of the 5% reduced VAT rate on the purchase or construction of primary residences. According to department representative Marios Michael, the reduced VAT rate has been applied illegally in many cases in recent months. This has occurred, in particular, when real estate is used for short-term rentals (e.g., through Airbnb) rather than as a primary residence.
The department is conducting enhanced checks in coastal areas.
Michael said that Cyprus Tax Department officials are conducting large-scale field inspections, especially in coastal areas where the demand for rentals is high. He noted that inspections will become even more intensive in July and August, with auditors conducting raids from early morning until late evening.
We have recorded numerous cases where housing purchased at a reduced VAT rate is used not as a primary residence but for the purpose of generating income, Michael emphasized.
How the checks are carried out: criteria and process
Although the specific details of the audit process are not disclosed, it is known that a list of persons eligible for preferential VAT is first drawn up. Then, targeted on-site checks are carried out based on a number of criteria, including activity on online rental platforms.
The main criterion for obtaining the exemption is that the property must have been used as the main and permanent place of residence for at least ten years. This factor is assessed retrospectively, as it cannot be verified at the time of application.
Can the property be sold before 10 years?
Yes, you can sell real estate purchased at a reduced VAT rate before the ten-year period expires. However, the owner must notify the Tax Department of terminating use of the property as their primary residence and pay the difference between the standard and reduced VAT rates for the remaining period.
Statistics on inspections and violations
According to the Tax Department, more than 5,000 on-site inspections were carried out in Cyprus between 2022 and 2024. As a result, inspectors identified 620 violations, with the total amount of unpaid VAT exceeding €40 million. Of those, 474 owners voluntarily agreed to pay off the debt, with the total amount of payments exceeding €13 million.
Debt repayment terms
Michael reminded us that an application for a reduced VAT rate must be submitted in the form of a declaration. Providing knowingly false information is considered a criminal offense. He urged all citizens who do not use real estate as their primary residence to act conscientiously, voluntarily reporting this and paying the difference in VAT. This step will help avoid possible criminal consequences.
Those facing financial difficulties may pay in installments over a period of up to 12 months. In exceptional cases, the Tax Commissioner may extend the repayment period.