Faced with a number of negative reaction from deputies and interested person in the construction industry, the Government of Cyprus announced on Monday, June 27 that it intends to revise usage of a 5% VAT rate on new real estate.
A few months ago, local officials developed new rules for calculating preferential VAT on apartments and houses in Cyprus, making them more compatible with EU legislation.
In order to avoid penalties from the European Commission, they proposed to introduce differences between charging 5% VAT on houses and apartments.
In particular, the new rules apply only to apartments of a price less than 200 thousand euros, and of the area less 110 m2. 5% VAT is charged only on the first 90 m2. The houses cannot cost more than 350 thousand euros and be bigger than 220 m2. 5% VAT is charged only on the first 110 m2.
There was also a reservation in the draft law: in order to use 5% VAT, a buyer must apply to the VAT Service before November 30 of the year of buying, after they receive a construction permit.
The Permanent Secretary of the Ministry of Finance stressed that the difference between houses and apartments gives Cyprus more freedom of action in relation to the requirements of the European Commission and increases the area on which 5% VAT can be applied.
However, the Scientific and Technical Chamber (ETEK) disagreed with the government.
ETEK head, Konstantinos Konstantis, said that it would be impossible for a young couple who wants to get their first house to get a building permit by the end of November. Instead, he proposed to change the requirement to the need to obtain a permit for urban development by the specified date. Konstantis also referred to the increase in prices for materials, which led to an increase in the cost of construction by 20%.
In turn, the representative of the Cyprus Developers Association noted that the current situation in the real estate market does not allow find a house or apartment with such square meters and prices, which makes innovations meaningless.
After listening to all sides, the Ministry of Finance agreed to postpone the vote on the adoption of new amendments to the bill and continue consultations with ETEK.
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