Preferential VAT rules for real estate in Cyprus will change

The European Union directive on the maximum footage of apartments (new construction) subject to a reduced - 5% - VAT rate does not comply with the domestic Cypriot legislation. Today, 5% VAT in Cyprus is paid by owners of houses up to 200 sq.m. Under the EU directive, Member States are required to introduce legislation on a 5% VAT rate on houses up to 140 square metres.
The deputies of Cyprus are actively discussing the possibilities of introducing the EU directive into the tax legislation of the country. But simply accepting the “as is” rule will not work, the risk of hitting the already unstable real estate industry of the country is too high. Even the multimillion-dollar fines in case of ignoring the requirements of the European Union are not as dangerous as raising the VAT rate for thousands of homeowners with an area of 141 to 200 sq.m.
At the beginning of July, the country's Ministry of Finance developed one of the options for a bill that could slightly increase EU limits and thereby protect Cyprus real estate from a sharp rise in price for current and future owners. For affirmation, the bill must be approved by the country's parliament.
The new bill provides a grace period - until November of this year. At the end of the grace period, the following VAT rates are planned to be applied to new buildings:
  • For houses 170–220 sq. m - 19% for each square meter over the limit
  • For houses over 220 sq. m - 19% for each sq. m of the entire project
  • For apartments up to 110 sq. m - 5% only for the area up to 90 sq.m.
An important point in the issue of applying a reduced VAT rate for small houses and apartments is the price of real estate. In Cyprus, the preferential rate can only be applied to houses under €350,000 and apartments worth up to €200,000.

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