Reduced VAT Rate of 5% on Housing Purchase in Cyprus

When purchasing housing in Cyprus that is used as a primary and permanent place of residence, a reduced VAT rate of five percent (5%) is applicable. To qualify for this benefit, certain conditions must be met, which we will explain in this article. At the end of the article, comprehensive examples of calculating the reduced VAT rate for different situations will be provided.

I. Transitional Provisions

The Amendment Law has established Article 63 of the VAT Law, which introduces transitional provisions applying the provisions of VAT Law 95(I) 2000, which were in effect before the publication date of the Amendment Law.

Specifically, according to these provisions, the reduced VAT rate of five percent (5%) applies to the purchase or construction of housing for the first 200 square meters of buildable area, as determined by the urban planning permit issued by October 31, 2023, based on the building coefficient in the architectural plans submitted to the "competent authority" for securing an urban planning permit or in the application for an urban planning permit submitted to the competent authority by October 31, 2023. Provided that the above conditions are met, the applicant is granted a three-year period from June 16, 2023, to submit a duly completed Responsible Declaration to apply the reduced VAT rate of five percent (5%) on the purchase of housing for the first 200 square meters of buildable area based on the urban planning permit issued by October 31, 2023, or based on the application for an urban planning permit submitted by October 31, 2023.

II. When the Reduced VAT Rate of Five Percent (5%) Does Not Apply

According to the Amendment Law, effective from June 16, 2023, the reduced VAT rate of five percent (5%) does not apply to housing if:

• The total area exceeds 190 square meters, or
• The total value of the housing exceeds €475,000

For housing where the buildable area exceeds 190 square meters or the total value exceeds €475,000, the standard VAT rate applies to the entire purchase amount or construction cost of the housing.

III. Application of the Reduced VAT Rate of Five Percent (5%)

The provisions of the Amendment Law for introducing the reduced VAT rate of five percent (5%) apply to the first 130 square meters of buildable area up to a value of €350,000.

For transactions where:

• The value is up to €350,000, the reduced VAT rate applies proportionally to the square meters area exceeding 130 square meters and up to 190 square meters.
• The value is from €350,001 to €475,000, the reduced VAT rate applies up to €350,000 proportionally to the square meters of buildable area exceeding 130 square meters and up to 190 square meters.

IV. Provisions for Disabled Individuals

For individuals with disabilities (as defined in Article 2 of the Amendment Law), the reduced VAT rate of five percent (5%) applies to the first 190 square meters area of the housing, regardless of the total area of the housing. If the total transaction value exceeds €475,000, the standard VAT rate applies to the entire amount of the purchase or construction cost of the housing.

V. Provisions for Large Families

For large families (families with at least four children), the total area of the housing is increased by 15 square meters for each additional child beyond three, both when purchasing and constructing housing. The value limits of €350,000 and €475,000 remain unchanged despite the increase in total area due to the children. If the total transaction value exceeds €475,000, the standard VAT rate applies to the entire amount of the purchase or construction cost of the housing.

VI. Acquisition of Another Residence Before the Lapse of Ten (10) Years

According to the Article of the Amendment Law published in the Official Gazette of the Republic on June 16, 2023, the ninth subparagraph of paragraph 3 of Table C of the Fifth Schedule of VAT Law 95(I) 2000 was amended as follows:

• A person who has exercised the right to acquire housing at a reduced VAT rate may exercise this right again for another housing before the lapse of ten (10) years, provided they pay the difference between the amounts of tax resulting from the application of the reduced rate and the standard rate for the period during which the housing was not used as the primary residence.

If the right to apply the reduced VAT rate has been approved for the purchase or construction of housing, and a new Responsible Declaration for another housing is submitted before the lapse of ten (10) years, the period is calculated from the date of the new declaration with an increase of up to 24 months to take possession of the new housing. The new Responsible Declaration can be submitted at any stage during the construction of the housing or before taking possession of the purchased housing.
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Example 1

• Property Area: 130 sq.m.
• Transaction Value: €350,000
• Person with Disabilities: No
• Large Family (number of children): No
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €350,000.00

Transaction Value Subject to Standard VAT Rate: €0.00

VAT Calculation:

• VAT 5% on €350,000: €17,500

Total VAT: €17,500

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Example 2

• Property Area: 150 sq.m.
• Transaction Value: €350,000
• Person with Disabilities: No
• Large Family (number of children): No
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €303,333.33

Transaction Value Subject to Standard VAT Rate: €46,666.67

VAT Calculation:

• VAT 5% on €303,333.33: €15,166.66
• VAT 19% on €46,666.67: €8,866.67

Total VAT: €24,033.33

Calculation Method:
(130 sq.m./150 sq.m.)×€350,000=€303,333.33
€350,000−€303,333.33=€46,666.67

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Example 3

• Property Area: 120 sq.m.
• Transaction Value: €370,000
• Person with Disabilities: No
• Large Family (number of children): No
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €350,000

Transaction Value Subject to Standard VAT Rate: €20,000

VAT Calculation:

• VAT 5% on €350,000: €17,500
• VAT 19% on €20,000: €3,800

Total VAT: €21,300

Calculation Method:

(120 sq.m./120 sq.m.)×€350,000=€350,000
€370,000−€350,000=€20,000
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Example 4

• Transaction Value: €330,000
• Large Family (number of children): No
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €268,125

Transaction Value Subject to Standard VAT Rate: €61,875

VAT Calculation:

• VAT 5% on €268,125: €13,406.25
• VAT 19% on €61,875: €11,756.25

Total VAT: €25,152.50

Calculation Method:

(268,125/330,000)×€330,000=€268,125
€330,000−€268,125=€61,875

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Example 5

• Property Area: 160 sq.m.
• Transaction Value: €370,000
• Person with Disabilities: No
• Large Family (number of children): No
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €284,375

Transaction Value Subject to Standard VAT Rate: €85,625

VAT Calculation:

• VAT 5% on €284,375: €14,218.75
• VAT 19% on €85,625: €16,268.75

Total VAT: €30,487.50

Calculation Method:

(160 sq.m./160 sq.m.)×€350,000=€284,375

€370,000−€284,375=€85,625

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Example 6

• Property Area: 191 sq.m.
• Transaction Value: €479,000
• Person with Disabilities: No
• Large Family (number of children): No
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €0.00

Transaction Value Subject to Standard VAT Rate: €479,000

VAT Calculation:

• VAT 5% on €0.00: €0.00
• VAT 19% on €479,000: €91,010.00

Total VAT: €91,010.00

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Example 7

• Property Value: €475,000
• Large Family (number of children): 5
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €294,736.84

Transaction Value Subject to Standard VAT Rate: €180,263.16

VAT Calculation:

• VAT 5% on €294,736.84: €14,736.84
• VAT 19% on €180,263.16: €34,250.00

Total VAT: €48,986.84

Calculation Method:

(130 sq.m+15 sq.m+15 sq.m)×(475,000/350,000)=€294,736.84
€475,000−€294,736.84=€180,263.16

Example 8

• Property Area: 220 sq.m. (190 sq.m. + 15 sq.m. + 15 sq.m.)
• Transaction Value: €475,000
• Person with Disabilities: No
• Large Family (number of children): 5
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €254,545.45

Transaction Value Subject to Standard VAT Rate: €220,454.55

VAT Calculation:

• VAT 5% on €254,545.45: €12,727.27
• VAT 19% on €220,454.55: €41,886.36

Total VAT: €54,613.63

Calculation Method:

(350,000/475,000)=€254,545.45
€475,000−€254,545.45=€220,454.55

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Example 9

• Property Area: 230 sq.m.
• Transaction Value: €475,000
• Person with Disabilities: No
• Large Family (number of children): 5
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €0.00

Transaction Value Subject to Standard VAT Rate: €475,000

VAT Calculation:

• VAT 5% on €0.00: €0.00
• VAT 19% on €475,000: €90,250.00

Total VAT: €90,250.00

Calculation Method:

‍Since the buildable area of 230 sq.m exceeds the maximum allowable area for a large family with 2 children, which is 220 sq.m (190 sq.m + 15 sq.m + 15 sq.m), the reduced VAT rate does not apply.

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Example 10

• Property Value: €475,000
• Large Family (number of children): No
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €392,391.30

Transaction Value Subject to Standard VAT Rate: €82,608.70

VAT Calculation:

• VAT 5% on €392,391.30: €19,619.57
• VAT 19% on €82,608.70: €15,695.65

Total VAT: €35,315.22

Calculation Method:

(230 sq.m./190 sq.m.)×€475,000=€392,391.30

€475,000−€392,391.30=€82,608.70

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Example 11

• Property Area: 170 sq.m.
• Transaction Value: €460,000
• Person with Disabilities: Yes
• Large Family (number of children): No
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €460,000

Transaction Value Subject to Standard VAT Rate: €0.00

VAT Calculation:

• VAT 5% on €460,000: €23,000
• VAT 19% on €0.00: €0.00

Total VAT: €23,000

Calculation Method:

(170 sq.m./170 sq.m.)×€460,000=€460,000

€460,000−€460,000=€0.00

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Example 12

• Property Area: 230 sq.m.
• Transaction Value: €475,000
• Person with Disabilities: Yes
• Large Family (number of children): 7
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €392,391.30

Transaction Value Subject to Standard VAT Rate: €82,608.70

VAT Calculation:

• VAT 5% on €392,391.30: €19,619.57
• VAT 19% on €82,608.70: €15,695.65

Total VAT: €35,315.22

Calculation Method:

(190 sq.m./230 sq.m.)×€475,000=€392,391.30

€475,000−€392,391.30=€82,608.70

In this example, the applicant will be guided by the criterion that provides the least VAT burden, which is the criterion for a person with disabilities rather than for a large family.

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Example 13

• Property Area: 185 sq.m.
• Transaction Value: €480,000
• Person with Disabilities: Yes
• Large Family (number of children): 7
• Date of Submission of the Responsible Declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026

Transaction Value Subject to Reduced VAT Rate of 5%: €0.00

Transaction Value Subject to Standard VAT Rate: €480,000

VAT Calculation:

• VAT 5% on €0.00: €0.00
• VAT 19% on €480,000: €91,200

Total VAT: €91,200

Calculation Method:

‍Since the transaction value exceeds €475,000, the standard VAT rate applies to the entire amount.

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