On Friday 28th February, the AKEL party submitted a new bill to the Cypriot parliament which aims to abolish the preferential VAT rate for third country nationals buying property in Cyprus.
It should be noted that currently foreign investors have the option of paying 5% instead of the standard 19% when buying new properties. According to the MPs, this leads to an uncontrolled increase in the number of transactions with third-country nationals, which has a negative impact on market access for locals.
The current system heats up the housing market, provokes price rises and reduces the ability of Cypriots to buy houses or flats at an affordable price. According to the initiators of the bill, the abolition of benefits will increase state revenues. At the same time, they are not against giving a favourable VAT rate to those who really need this kind of support. AKEL said that the previous authorities were geared towards attracting foreign investors, often ignoring the interests of the local population.
The reduced VAT rate should only be granted as part of the state's social policy to support the small and medium sections of society, i.e. those who have seen for years how the government favours foreign investors but completely ignores the growing housing needs of ordinary people,' the MPs concluded.
It should be remembered that the cost of new properties in Cyprus now includes Value Added Tax (VAT) at the standard rate of 19%. However, there is the possibility of applying a preferential rate of 5% if the property purchased is to be used as a primary residence. A number of conditions must be met.
The preferential rate of 5% can be applied if:
- The purchaser of the property is a natural person and not a legal entity;
- The purchased property will be used as the owner's main residence in Cyprus for at least the next 10 years;
- The purchaser does not own any other property in Cyprus previously purchased at the preferential VAT rate;
- The property will not be let or otherwise used for the purpose of generating income.
Currently, the preferential VAT rate of 5% applies to the first 130 m2 of residential property up to a value of €350,000. At the same time, the total value of the property may not exceed 475 thousand euros and its surface area may not exceed 190 m2.