Since June 2023, more than 9,000 applications for the purchase of residential property in Cyprus using the reduced VAT rate of 5% have been approved.
This was revealed recently by Finance Minister Makis Keravnos in an official letter submitted to the House of Representatives.
According to Keravnos, if all these transactions had been subject to the standard 19% VAT rate, the state budget would have gained an additional €360 million.
The Ministry of Finance paid particular attention to transactions involving properties priced over €500,000, which nonetheless benefited from the reduced VAT rate.
Keravnos noted that around 650 properties of up to 200 m² were sold for more than €500,000.
If these had been taxed at the full VAT rate, the state would have received approximately €85 million in revenue.
Another 300 cases involved properties of varying sizes, also sold for more than €500,000, leading to €47 million in lost revenue.
In total, property buyers of homes worth over €500,000 saved about €132 million thanks to the lower VAT rate, according to the Ministry of Finance..
The VAT law was revised in 2023, and the new rules took effect on June 16.
Under the updated legislation:
- The reduced 5% VAT rate applies to the first 130 m² of a primary residence, provided the total value does not exceed €350,000.
- The overall value of the property must not exceed €475,000, and its total size cannot exceed 190 m².
- For people with disabilities, the reduced rate applies to the first 190 m².
The reduced VAT scheme was designed to support first-time homebuyers and make housing more affordable.
However, the latest data reveals that a significant number of high-end properties also benefited from this scheme—raising concerns among Cypriot officials.
The issue was raised by independent MP Alexandra Attalides (Volt), who formally requested that the Finance Ministry provide data on transactions where reduced VAT was applied to luxury properties.
According to Attalides, such cases undermine the purpose and fairness of the policy.
A review of the eligibility criteria for applying the reduced VAT rate is now expected to be discussed in upcoming parliamentary sessions.
Officials emphasize the need to strike a balance between supporting homebuyers and ensuring fairness and transparency in Cyprus’s tax policy.