Slashing of VAT on Cyprus homes approved
The plenary session of the Cyprus Parliament on Thursday almost unanimously passed a law allowing for the value-added tax rate on the first 130 square meters of a primary residence, including both houses and apartments, to be reduced by 5%. The measure was voted on by 42 deputies, with one abstention.
The reduced VAT rate will apply to the first 130 sq.m. of a primary residence up to a value of 350,000 euros, provided that the total transaction value does not exceed €475,000 and the total constructed area does not exceed 190 sq.m.
The amendment “aligns with market data and satisfies, to the best possible extent, the requirements of the European directive, while remaining, in conjunction with the highest transaction value, a socially targeted measure as a secondary safety net.”
The draft law also includes a provision that allows for the application of the reduced VAT rate on the first 190 sq.m. of a constructed area for individuals with disabilities.
A transitional period is also provided for, during which the proposed regulations will not apply in cases where urban planning permission has been obtained or an application for such permission has been submitted within four months from the effective date of the law.
During a lengthy debate in the plenary session, despite the consensus surrounding the passage of the law in question, there were disagreements among the parties regarding the responsibilities that led to the amendment of the legislation that previously allowed for a reduced VAT rate of 5% on the first 200 sq.m. of a residence. The European Commission has initiated infringement proceedings against the Republic of Cyprus regarding this matter, saying that the specific measure was not implemented as a social policy measure.
Despite a different proposal, put forward by the Ministry of Finance, which provided for a reduced VAT rate for the first 110 sq.m. and had the approval of the Commission, Minister Makis Keravnos informed the Parliament that he would respect the proposal to be voted on by the Parliament and support it in the competent EU institutions.
On Monday Keravnos had warned that Nicosia risks being taken to the European Court and fined, with the EU potentially claiming the entire amount of its own resources increased with overdue interest.
