VAT was introduced on the purchase of brand new property in Cyprus (since Cyprus’ accession to the EU in May 2004) and on the purchase of the land (from January 2018). The VAT rate is 19% and this is usually additional to the purchase price. The seller collects the VAT from the buyer with every payment the latter makes towards the purchase price and then pay this to the VAT Department.
When VAT was imposed on property, the Cypriot government tried to mitigate this additional cost to buyers by:
(a) giving buyers the opportunity to apply and receive a VAT reduction from 19% to 5% on the property to be used as their home (this is generally known as a VAT Reduction Application and
(b) by relieving the buyers who pay VAT from the payment of Land Registry Transfer Fees when they get the title deed of the property registered in their names.
Do I pay VAT on resale properties? No
Do I pay VAT if I purchase a new property? Yes
Do I pay VAT if I purchase land? Usually yes. There are some exceptions in the Law relating to the sale of land and these relate primarily to the circumstances of the seller (e.g. if the seller has sold land before etc). The Seller can apply to the Vat authorities to check his/her status for the Vat.
What is the VAT reduction application?
The VAT reduction application can be applied for by individuals in order to reduce the VAT rate from 19% to 5% but only for their home.
Since Cyprus Goverment approved the New Rules have been approved from Cyprus Goverment and will be in force from November 1st 2023 for calculating the preferential VAT rate on real estate is a s follows:
1. Only new residential properties with an area of up to 130 m² and a value of up to 350,000 euros + VAT will be subject to a reduced tax of 5%.
2. In residential properties up to 190 m² and valued up to 475,000 euros – 5% VAT will be applied to the first 130 m² and 19% VAT from 131 m² to 190 m².
3. If the area exceeds 190 m², and the price is 450 thousand euros, then the 5% rate is not apply and Such case will be subject to the full 19% VAT.
Until that moment, buyers have the opportunity to purchase a property in Cyprus under the old rules, which provide that a 5% preferential rate applies to the first 200 m² of real estate, regardless of its price and area.
The reduced VAT rate on new property in Cyprus can be used by individuals, regardless of their citizenship status, if:
– they have reached the age of 18 years old on the date of filing an application for the application of preferential VAT;
– acquire property as their permanent and primary residence in Cyprus;
– do not own any other property in Cyprus that has been acquired with a reduced VAT rate;
– intend to use the property for their personal needs, and not for profit (for example, renting out).
The buyer who obtains a VAT reduction should maintain the property for a period of 10 years to be able to keep all the VAT discount which he obtains. The said property can still be sold before the end of the 10year period but an amount will need to be paid back to the VAT authority for the years which remained. Furthermore, the buyer who obtains the VAT reduction cannot rent the property out as that is not considered to be in line with the underlying principle of the grant.
I am buying a new property for investment purposes; can I proceed with VAT reduction?
If you plan on renting out the property either short term or long term you are not eligible for the VAT reduction.
I am buying a new property in the name of my company; can I proceed with VAT reduction? No
Is the VAT reduction “one off”?
You can only have one VAT reduction grant at a time. This means that if you sell a property for which you obtained a VAT reduction or if the 10 years have expired from the time you obtained a VAT reduction, then you can re-apply to obtain a new VAT reduction on another property.
Can my spouse and I purchase two separate new properties and apply for two VAT reductions?
You are only allowed one VAT reduction per married couple. You can purchase several new properties but you can only have one VAT reduction permission between you.
When can I apply for the VAT reduction?
The application can be submitted only after you have signed the contract of purchase of the property and provided that the said contract has been lodged at the Land Registry.
What VAT rate do I pay if I make payments to the seller before my VAT reduction application is submitted or even before it is approved?
Usually, you will be required to pay an amount of around 20-30% of the property purchase price at the same time as the signing of the contract of purchase. This amount will be paid to the seller with 19% VAT. Thereafter, and as soon as your VAT reduction is approved you must provide the said approval to the Developer who will, in turn, adjust the original payments you had made to reflect the change in the VAT from 19% to 5%. This means that you may be provided with a credit note for the initial payments made with the higher VAT rate. All following payments should then have 5% VAT.
You should only pay a nominal fee to the land registry for the registration of the title deed of the property in your name provided you can prove that you paid VAT on the purchase price of the same. The Land Registry will require proof (such as the receipts of payments made to the seller) clearly showing the VAT paid. The land registry transfer fees will be nominally provided that the value of the property is accepted by the land registry as that which is on the contract of purchase. Should the property valuation is done by the land registry be higher than the contract purchase price this may result in transfer fees being due only on the difference between the two amounts.