Understanding VAT on Purchasing New Property in Cyprus: A Detailed Guide

When purchasing new property in Cyprus, understanding the intricacies of Value Added Tax (VAT) is essential for accurate financial planning. This guide will explain how VAT is applied to real estate transactions in Cyprus, highlighting both the standard and reduced rates. We will also provide detailed examples to illustrate the calculations, ensuring you are well-informed before making your purchase.

What is VAT on Property in Cyprus?

In Cyprus, VAT is imposed on the acquisition of new properties. However, resale properties, as well as new properties with planning permits obtained before May 1, 2004, are exempt from VAT and instead subject to Transfer Fees.

The standard VAT rate in Cyprus is 19%. However, under specific conditions, a reduced VAT rate of 5% can be applied, allowing significant savings for eligible buyers.

Conditions for Reduced VAT Rate

To qualify for the reduced VAT rate of 5%, several criteria must be met:

1. Eligibility: The applicant must be an individual (not a company) aged 18 or older.
2. Primary Residence: The property must be used as the applicant’s primary residence in Cyprus.
3. First-Time Benefit: The applicant should not have previously purchased a property in Cyprus using the reduced VAT rate.
4. Personal Use: The property must be intended for the applicant’s own use and not for profit (e.g., renting it out).
5. Vacancy Requirement: At the time of application, the property must not be in use—nobody should be living in it, and utilities like water and electricity should not be active.
   
   
   

Property and Value Limits for Reduced VAT

The reduced VAT rate applies to the first €350,000 of the property's value, provided the total value does not exceed €475,000. It also applies to the first 130 square meters of the property's area, as long as the total area does not exceed 190 square meters. Properties exceeding these limits are subject to the standard 19% VAT rate on the excess value or area.

Examples of VAT Calculations

Let's break down how VAT is calculated using several scenarios:

Example 1: Apartment with an area of 100 sq.m. and a price of €300,000

• VAT Rate: 5% (since both the area and price are within the limits)
• VAT Calculation:
  €300,000 x 5% = €15,000
  Total VAT Payable: €15,000
  
  

Example 2: Apartment with an area of 120 sq.m. and a price of €400,000

• VAT Rate: 5% on the first €350,000; 19% on the remaining €50,000
• VAT Calculation:
  €350,000 x 5% = €17,500
  €50,000 x 19% = €9,500
  Total VAT Payable: €17,500 + €9,500 = €27,000
  
  

Example 3: House with an area of 140 sq.m. and a price of €475,000

• VAT Calculation:
  VAT on €325,000 (calculated as €475,000 x (130/140) x (350/475)) at 5% = €16,250
  VAT on remaining €150,000 at 19% = €28,500
  Total VAT Payable: €16,250 + €28,500 = €44,750
  
  

Example 4: House with an area of 200 sq.m., regardless of the price

• VAT Rate: 19% (as the area exceeds 190 sq.m.)
• VAT Calculation:
  €[property value] x 19%
  Total VAT Payable: Subject to 19% VAT on entire property value
  
  
  

Special Cases for Properties with Older Permits

For properties where the planning permit was obtained, or an application for such a permit was submitted before October 31, 2023, and where the application for the 5% VAT rate is submitted by June 15, 2026, a different rule applies. In these cases, the reduced rate of 5% can be applied to the first 200 square meters of the property, regardless of its price or total area. This rule is particularly beneficial to buyers, offering a greater scope for VAT savings.

Obligations for Maintaining the Reduced VAT Rate

If the buyer who has obtained the reduced VAT rate ceases to use the property as their primary residence within 10 years (for example, if they sell or rent the property), they must notify the VAT Department within 30 days and pay the difference between the reduced and standard VAT rates for the remaining period.

Example:

• Property purchased for €300,000 + 5% VAT (€15,000).
• If sold after 3 years, the buyer must repay 7/10 of the VAT difference (between 19% and 5% VAT).
• €300,000 x 19% = €57,000 (VAT at full rate)
• €57,000 - €15,000 = €42,000 (VAT difference saved)
• €42,000 x 7/10 = €29,400 (amount repayable to VAT Department).
  
  
  

Additional Comments on VAT Law

Comment 1: The property must be the main place of residence in Cyprus, but this does not mean that the applicant must reside there full-time. The property can be used as a vacation home, as long as it is the applicant’s primary residence in Cyprus during their stay.

Comment 2: Buyers do not need to pay VAT at 19% and then apply for a refund of 14%. Instead, they can pay the reduced VAT rate of 5% directly when purchasing the property, provided the application for the reduced rate is approved.

Conclusion

Understanding how VAT is calculated when purchasing a new property in Cyprus is essential for making informed decisions and optimizing your financial investment. The reduced VAT rate offers substantial savings, but it is crucial to understand the conditions and apply correctly to benefit fully.

If you’re considering purchasing property in Cyprus, visit BuySellCyprus.com to explore a wide range of new properties and use our VAT calculator to estimate your potential costs. This comprehensive resource will guide you through the process and help you maximize your savings.