The real estate taxation system in Cyprus is fairly transparent, but it also has its peculiarities that directly affect the final cost of purchasing a property. The Value Added Tax (VAT) was introduced in Cyprus in 2004 and applies to all new residential and commercial properties. Since January 2018, the tax has also been extended to the purchase of land plots.
The standard VAT rate is 19%, which significantly increases the cost of purchasing a property for the final buyer. However, to support young families and citizens buying their first home, the government introduced a reduced rate of 5%. This measure has considerably reduced the burden on buyers and has become one of the factors supporting domestic demand for housing, despite rising prices and interest from foreign investors.
Important detail: VAT is charged only when purchasing new properties. For secondary real estate, there is no VAT, which makes such transactions more accessible for investors focusing on rental or quick resale.
Key Conditions for Receiving the Benefit
To take advantage of the 5% VAT rate when purchasing a property, the buyer must meet a number of criteria. First, the buyer must be an individual, not a company. The reduced rate does not apply to investments in rental or commercial properties.
Furthermore, the house or apartment must be used exclusively as the primary residence for at least ten years. If during this period the owner decides to rent out or sell the property, the tax authorities have the right to recalculate VAT at the standard rate.
The process of obtaining the reduced rate requires submitting an application along with a package of documents. Among the required documents are a copy of the purchase agreement, the buyer’s passport, and a document from the Cyprus Electricity Authority (EAC) confirming residence. In some cases, the tax authorities may request additional documents, especially if the property was purchased through a mortgage or joint ownership.
Old and New Rules: What Changed in 2023
Until June 2023, the VAT rules were relatively lenient, with the reduced rate applying to the first 200 square meters of property. If the property was larger, the remaining area was taxed at 19%. This allowed for the purchase of larger homes and villas without significant tax costs.
After amendments to the legislation, the conditions changed. Now, the reduced rate applies only to the first 130 square meters of residential space, provided the total area of the house or apartment does not exceed 190 square meters. There are also price limits: the property value cannot exceed 350,000 euros, and the total deal value cannot exceed 450,000 euros.
Thus, the new rules have made access to the benefit more restricted. The main goal now is to stimulate the purchase of mid-range housing and support buyers acquiring their first property for personal use, rather than investors interested in premium properties.
An exception is made for people with disabilities, who can apply for individual conditions. Furthermore, for properties where a building permit was issued before October 31, 2023, the old, more lenient rules still apply.
The Importance of the 10-Year Residency Condition
The key principle of the 5% VAT program is that the property must be used as the owner’s primary residence for ten years. If this term is violated, the state has the right to demand a partial refund of the benefit. For example, if the buyer lived in the property for only five years and then sold it, the tax authorities would recalculate VAT for the remaining five years, based on the difference between the 5% and 19% rates. Thus, the benefit remains proportional to the actual period of residence.
A notification about the sale or rental of the property must be submitted through the electronic portal Tax For All. The application should state the reasons for giving up the benefit, and it must include a copy of the Title Deed or the purchase agreement, passport, and documents confirming residence. The tax department, after checking the documents, will calculate the additional tax due and set the payment terms.
If the owner fails to notify the authorities about an early sale or rental, they may face fines, interest charges, and even legal complications when finalizing the transaction.
Reuse of the Benefit
Interestingly, after returning the benefit and paying the tax difference, the buyer can once again claim the 5% VAT when purchasing a new property. This opens up the possibility for those who, for example, first buy an apartment and then decide to upgrade their living conditions by purchasing a house.
However, when making a second purchase, the buyer must again meet all the conditions: the property must be new, used as the primary residence, and its area and cost must fall within the established limits.
Current Market Trends in 2025
The real estate market in Cyprus in 2025 is experiencing a period of active growth. Demand is especially high in Limassol and Nicosia, where apartment and house prices continue to rise due to limited supply and constant interest from foreign investors. Resort regions such as Paphos and Protaras are also popular, where many buyers view properties as second homes or short-term rental objects.
In such conditions, the opportunity to purchase property with a 5% VAT rate becomes particularly significant. The benefit helps young families and first-time buyers compete with investors, who are often ready to pay for property under standard conditions. However, the changes in 2023 have made the rules stricter, and the benefit is now primarily aimed at supporting local residents, rather than foreigners.
Why It's Worth Consulting a Lawyer and Tax Consultant
Despite the seemingly simple rules, in practice, obtaining the benefit involves many nuances. Mistakes in documentation, failing to notify the authorities on time, or incorrect interpretation of the rules can lead to fines and financial losses.
Therefore, it is recommended to consult a lawyer and tax expert before purchasing property in Cyprus. Specialists will help correctly submit the application, check the compliance of the property with the established requirements, and ensure that the buyer does not lose the right to the benefit.
The 5% VAT benefit is a powerful tool to support buyers, making property acquisition in Cyprus more affordable. However, the program requires strict adherence to the rules: the property must be new, used as the primary residence, and remain in ownership for at least ten years.
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