Updated Rules for Calculating 5% VAT on Real Estate Purchases in Cyprus

The standard VAT rate in Cyprus for the purchase of primary real estate is 19%. However, under certain conditions, Cyprus laws permit a potential reduction of VAT to 5%.

On June 6, 2023, the government of Cyprus introduced significant amendments to the legislation regarding the application of the reduced 5% VAT rate. The new rules were published in the official gazette of the Republic of Cyprus on June 16, 2023, and have generated significant interest from investors and potential buyers of Cypriot real estate.

This article will examine the key details and conditions of the updated rules for calculating 5% VAT on real estate purchases in Cyprus.

How Was VAT Calculated in Cyprus Before the Changes?

Prior to the amendments to the law, the following conditions applied to the calculation of the reduced 5% VAT rate:

• The 5% rate applied to the first 200 square meters of real estate without restrictions on size or cost.
• Any area exceeding 200 sq. m. was subject to the full 19% tax rate.
• The 5% reduced rate applied only to primary residences purchased from developers (this requirement remains in effect).
• The property was acquired for personal use, not for investment purposes (this requirement also remains in effect).

The Latest Amendments to the 5% VAT Application Law

The new rules, published on June 16, 2023, include area limits, cost restrictions, and are as follows:

• The reduced 5% VAT rate applies to the first 130 sq. m. of the main residential house, provided that the total construction area does not exceed 190 sq. m., and
• provided that the cost does not exceed 350,000 euros, and the total transaction value does not exceed 475,000 euros.
• The buyer must use the real estate as their own place of residence (including their family), not as an investment (i.e., for short-term or long-term rental income).

If these criteria are exceeded, the standard 19% VAT rate on the total cost will apply to the property.

Criteria related to area and cost may be reviewed in the case of individuals with disabilities, persons with special needs, as well as families with three or more children.

Transition Period

The previous rules will remain applicable if planning permission has already been obtained from the relevant authority, or if an application for such permission was submitted before October 31, 2023.

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