All buyers and developers who benefited from the 5% reduced VAT rate on the purchase or construction of a primary residence in Cyprus under the old rules will retain this right only until June 2026. After this date, the transitional provisions of Law No. 42(I)/2023 will expire, and all transactions will be governed by the new system.
Under the temporary provisions, applicants who submitted building permit applications between June 1 and October 31, 2023, could take advantage of the reduced rate regardless of when construction would be completed. Thus, the old and new tax regimes have been operating in parallel for three years — from June 16, 2023, to June 15, 2026.
Old vs. new rules: what has changed
The previous 2016 law provided overly broad benefits — the 5% VAT rate applied to the first 200 m² of a home, regardless of the total size or value of the property. However, following pressure from the European Commission, Cyprus was required to amend the system to bring it into line with EU legislation.
According to the new rules, the 5% VAT rate applies only to:
- the first 130 m² of the property;
- with a maximum property value of €350,000;
- provided that the total area does not exceed 190 m², and the total transaction value does not exceed €475,000.
Anything exceeding these limits is subject to the standard 19% VAT.
For persons with disabilities, the reduced rate applies up to 190 m², while the price ceiling remains the same.
Monitoring violations and VAT repayment
Cyprus’s Finance Minister Makis Keravnos reminded the public that anyone who received the VAT benefit but later did not use the property as their main residence must repay the difference, i.e. pay an additional 14% VAT. This includes participants of the now-defunct “Citizenship by Investment” program who purchased property for rental or resale purposes.
Over the past three years, the Cyprus Tax Department has carried out over 5,000 inspections, uncovering violations worth approximately €50 million. Most cases were recorded in coastal areas and student districts such as Engomi and Aglantzia, where properties were being rented out through platforms like Airbnb.
Currently, a voluntary compliance campaign is underway, allowing property owners who lost their eligibility to settle their VAT obligations without penalties. In cases of financial hardship, the tax can be repaid in 12 monthly installments, and in exceptional situations, a deferment can be granted by decision of the Tax Commissioner.
New opportunities and family protection
The 2023 amendments also address repeat applications and property transfers within families. Previously, if a person reapplied for the reduced VAT before the 10-year period expired, they had to repay the entire amount. Now, the repayment is calculated proportionally to the remaining time.
Furthermore, if the property is transferred to an adult child who meets the criteria for the 5% rate, no VAT repayment is required, provided that the child uses the property as their main residence. Even if the parents continue living in the house, no tax repayment is needed — a written notification to the Tax Department is sufficient.
Combating abuse and new tools for citizens
Tax inspections are being intensified, especially in resort and coastal areas, where violations are most common. During the summer season, controls will be even stricter, as illegal rentals are most frequent during that time.
To make the system more transparent, the Tax Department has introduced an online VAT calculator on its website, allowing citizens to easily calculate the tax amount under the new rules. Finance Minister Keravnos also confirmed that the European Commission has officially closed the infringement case against Cyprus, recognizing that the 2023 amendments fully comply with EU law. This means the country will not face any fines or sanctions.
A new phase in Cyprus’s tax policy
The VAT reform on housing marks an important step toward tackling tax abuse and increasing transparency in the real estate market. From 2026 onward, the system will become fairer and more balanced, focusing on supporting those buying their first home to live in, rather than for speculation or investment.
Cypriot experts predict that in the coming years, demand for property will continue to grow, especially in the eco-friendly and energy-efficient housing segment, which falls under the reduced VAT category. Thus, the reform not only protects the tax system but also promotes the sustainable development of Cyprus’s housing sector.