CYPRUS WILL NOT CANCEL THE PREFERENTIAL VAT WHEN PURCHASING REAL ESTATE
The standard rate of VAT, that is, value added tax, is 19%. However, for the first new property with an area of up to 200 m², VAT could be reduced to 5% through a tax deduction.
Let us recall that previously the area of the property should not exceed 200 m², or the deduction applied only to the first 200 m² of housing, and the remaining meters were taxed at the standard rate of 19%.
The EU Directive instructs all member states to introduce into law a 5% VAT rate on real estate with an area of up to 140 square meters.
However, the following draft amendments were agreed upon:
- An apartment or house with an area of up to 150 m² and a maximum value of € 350,000 will enjoy a reduced VAT rate of 5%;
- For houses with an area of 150 to 200 m², the first 150 square meters are subject to a reduced tax rate, but for each square meter from 150 to 200 m² of total area you will have to pay a VAT of 19%. This applies to properties valued up to €475,000;
- Houses larger than 200 m² are not eligible for the lower rate and are charged 19% for the entire project.
- However, on Monday, behind closed doors at a meeting of the Finance Committee, deputies decided to increase the total area of the house from 150 to 190 m², which will be subject to preferential VAT, contrary to the recommendation of Brussels to adopt the approved draft law before June 8.
Most likely, MPs will have to sign the first draft adopted by the EU to avoid the risks of sanctions and complicating relations with the European Commission.
The remaining rules for reducing the rate have not changed. The benefit is provided to both citizens of the Republic of Cyprus and the EU, as well as citizens of third countries, subject to the following requirements:
- The buyer must be an individual over 18 years of age;
- The property must be his main place of residence in Cyprus;
- The applicant must not have any other property in Cyprus acquired within 10 years with a preferential VAT rate. That is, after 10 years you can again receive a tax benefit by indicating a new property as your main place of residence;
- The property must be used exclusively as residential space;
- The event is highly anticipated. For more than six months there have been rumors about the abolition of preferential taxation in general, and Cyprus has maintained attractive conditions for purchasing housing for quite a long time despite EU pressure.
As part of participation in the permanent residence program for investment, it will still be quite possible to purchase a property in Cyprus worth from €300,000 to €475,000 of comfortable square footage up to the legal limits in order to take advantage of the right to a tax deduction.
Please note that this article is for informational purposes only. For further advice, please contact us at the contacts listed on the site.