VAT on the purchase of Real Estate in Cyprus

VAT при покупке недвижимости на Кипре
5 June 2020 DOM LiVE
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Value Added Tax (VAT) – when you buy a new property, it is required to pay VAT. Purchasing of the secondary housing market object or new from the developer that has a construction permit issued before May 1, 2004, are not subject to VAT. 

VAT rate in Cyprus

The standard VAT rate of 19% is required to be paid when you buying a new property. But according to the law, the buyer has an opportunity to save, and pay only 5% VAT on the first new housing. The fact is that on June 8, 2021, the law of the Republic of Cyprus № 73 (1) / 2012 entered into force, which amended tax legislation and allowed to receive preferential 5% VAT instead of the current rate – 19%.

The law of the Republic of Cyprus provides the following VAT rates when buying real estate:

  • Zero rate – 0% -for the purchase of a secondary property or a new from the developer that have a construction permit issued before May 1, 2004
  • Reduced rate – 5% - for the purchase of the first property in Cyprus
  • Standard rate – 19%.

The reduced VAT rate is granted when the following requirements are fulfilled:

  • The buyer must be an individual (not a company) who has reached 18 years of age
  • The purchased property shall be the applicant’s main place of residence in the Republic of Cyprus for the following 10 years.
  • The buyer should not have any other property acquired earlier at a reduced VAT rate
  • The property shall be used solely for one’s own use and not for the profit (such as from renting) Cyprus for the following 10 years
  • The reduce rate 5% applies only the first 200 m2 of residential property, according to the architectural plans, approved by the official authorities in the Republic of Cyprus. For the remaining area, the buyer will have to pay the standard rate – 19%

For example, a buyer purchased for the personal use of a house with an area 350 m2 and a total value of 1,5 million EUR. The VAT calculation is as follows:

€1.500.000 х 5% x 200m²/350m² = €42.857

€1.500.000 х 19% х 150m²/350m² = €122.143 

The total amount of VAT is:

€42.857 + €122.143 = €165.000

NB!

On November 18th, 2016 previous condition was abolished, In order for a property to qualify for the reduced rate, it had to be below 275 m2.

What does “main place of residence” mean?

The buyer may not be in Cyprus permanently. But at the moment, when he is in Cyprus, this property should be the main place of residence. It is proving that the property was purchased for his personal usage, and not for commercial purposes.

Is it possible to sell or rent this property?

If the buyer granter a reduced VAT rate -5%, ceases to use this property as his first and primary residence in Cyprus earlier than 10 years from the date of taking possession (in case of a sale or rent), he has to notify the Department of VAT within 30 days and pay the difference between reduced and standard VAT rates that were affected at the time of signing the Agreement.

Let’s have a look at an example:

The buyer bought a new apartment for €500.000 and 5% VAT was accepted. He paid VAT - €25.000. After 7 years, he decided to buy a house and sell the apartment. But according to the law, he should not sell or rent this property for 10 years.

Let's calculate the payout amounts:

€500 000 × 19% = €95 000 — Standard VAT, 19%

€500 000 × 5% = €25 000 — the buyer paid before

€95 000 — €25 000 = €70 000 — the amount of saving

€70 000 х 3/10 = €21 000 — the amount that the buyer will be required to reimburse to the TAX department. (Where 3 – is the year remaining until the end of the mandatory 10-year period).

If you have any questions or need professional assistance, leave a comment under this post or in the special section of our portal.

Source: DOM LiVE

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