Reduced VAT Rate

Acquisition of a property in Cyprus is subject to VAT (Value Added Tax) and the current VAT rate is 19%.

As from 1^st of October 2011 a reduced rate of VAT (5%) shall be applied to dwellings used or intended to be used by a beneficiary as the principal and permanent place of residence, once a responsible declaration submitted by the beneficiary is approved by the VAT Office, according the amending law N. 129(I)/2011 of the VAT Law of 2000 (N.95(I)/2000).

Furthermore, as of 8^th of June 2012, the reduced rate of VAT shall be extended to dwellings used or intended to be used by a beneficiary, as a principal and permanent residence in the Republic and to citizens of countries other than EU Member States.

Beneficiaries:

1. Individuals who have completed their 18^th year of age on the date of applying.
2. Acquire the Property for use as their principal and permanent residence in Cyprus.

Basic Conditions and Criteria:

1. The planning permit or the building permit (where a planning permit is not required), must be submitted to the VAT department after the 01/05/2004, which means that the property is subjected to VAT.
2. The total area of the property must not exceed 275m2. It should be borne in mind that the reduced 5% VAT applies only to the first 200m2 of the property. In cases of large families (minimum of four (4) children) the total area of the property increased by 15m2 per each addition children.
3. It is important to emphasize that in cases where the reduced VAT rate is approved, the property must be used as the applicant's principal and permanent residence in Cyprus for a period of ten (10) years. It is not permitted to generate any income such rents, or to utilize the property as an investment or any other type of business.

Important Notes

• Deadline for submitting the application, if the property is under construction the reduced VAT rate application can be submitted at any time during the construction. In cases of purchasing new-build properties the application must be submitted before the eligible person taking possession of the property.
• In cases where the reduced VAT rate (5%) is approved, the residential dwelling must be used as the applicant's principal and permanent residence in Cyprus for a period of ten (10) years. If the eligible person ceases to use the dwelling as a principal place of residence earlier than ten (10) years he shall, within 30 days from the date he ceases to use it as a place of residence, has to notify the Commissioner and pay the difference between the amount of tax resulting from the application of the reduced rate (5%) and the standard rate as applicable on the date supply or construction of the property, which accounts for the period he has not used the property for the purposes of residency, except in case of death of the beneficiary or in case of transfer by the beneficiary to any adult children.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.