Cyprus Changes VAT Rules for New-Build Properties from 1 September

New rules for determining VAT on property sales are coming into force in Cyprus. The decisive factor will no longer be the date when construction was completed, but whether the property has been used for its intended purpose for at least 18 months. The reduced 5% VAT rate for the purchase of a first and permanent home will remain in place, but the criteria used to determine whether a particular transaction is subject to VAT are changing.

The changes are provided for by administrative regulations ΚΔΠ 102/2026 and ΚΔΠ 103/2026, published in the Official Gazette on 27 February 2026. The regulations will come into force on 1 September and will affect homebuyers as well as developers, investors, contractors and tax advisers.

New rules

The main change is that the definition of a “new property” will no longer depend on the age of the building. Two new definitions are being introduced into the legislation:

1. First occupancy — the first actual use of a property after construction has been completed or the property has been handed over. This may include occupation by the owner, use by a company for its own purposes, or renting out the property.
2. First use — systematic use of the property for a minimum of 18 months.

If a property is sold before its first occupancy, the transaction is subject to VAT. If the property has already been used for at least 18 months, the sale is exempt from VAT. Therefore, it is now the property's history of use, rather than the date the building was completed, that determines its tax treatment.

Five-year rule abolished: what this means for buyers

Until 31 August 2026, a different system applied. A property was considered new if it was sold before its first use or within five years of the completion of construction. An exception applied where an independent user had occupied the property for at least 24 months. From September, this system will be abolished entirely. For example, an apartment built in 2020 but never occupied will still legally be considered new in 2027 and will be subject to VAT when sold.

At the same time, it will no longer matter who used the property. Any 18 months of continuous use will count, whether by the owner, a tenant or the developer itself. For buyers, the difference can be substantial. For example, for an apartment priced at €300,000, the VAT liability could be:

1. without VAT — €0;
2. at the reduced rate of 5% — €15,000;
3. at the standard rate of 19% — €57,000.

This is why experts recommend checking the property's history of use before signing a sale and purchase agreement.

Reduced 5% VAT rate remains in place

Despite the changes, the conditions for applying the reduced VAT rate to a first and permanent home remain unchanged. The reduced 5% rate applies:

1. to the first 130 m2 of a home valued at up to €350,000;
2. provided that the property's total area does not exceed 190 m2 and its value does not exceed €475,000.

If either of these limits is exceeded, the standard 19% rate applies to the entire value of the transaction. For people with disabilities, the reduced VAT rate applies to the first 190 m2 of the property. The only change is that the tax authorities will now take into account whether a particular property is considered new under the new definitions of “first occupancy” and “first use”.

It should also be noted that the transitional period under the previous reduced VAT scheme ended on 15 June 2026. A limited extension until the end of the year is provided only for applications whose processing has been delayed by government authorities.

What will change for home renovations and which documents should be checked

The new rules will affect not only property purchases but also renovation work. From 1 September, the reduced 5% VAT rate on home renovations will remain available only if two conditions are met:

1. at least three years have passed since the first occupancy;
2. the property has been continuously used for at least 18 months.

If the cost of construction materials exceeds 50% of the total renovation cost, the materials will continue to be subject to VAT at the standard rate of 19%. Property market experts advise buyers to request documents confirming the property's use before completing a transaction. These may include tenancy agreements, utility bills, proof of residence registration or other documents that can establish the period during which the property was actually in use.

According to market participants, the first transactions completed after 1 September 2026 will be particularly indicative. The changes could affect not only the prices of individual properties but also developers' sales strategies, as they may now make more active use of completed apartments before selling them in order to change the property's tax status.