Reduced VAT Rate of 5%

Changes to the Application of Reduced VAT on Permanent Residences

The amended Value Added Tax (VAT) Law, Ν.42(I)/2023, approved by the House of Representatives and published in the Government Gazette on June 16, 2023, introduces significant updates to the reduced VAT rate for residential properties designated as primary and permanent homes.

Under the revised legislation, a reduced VAT rate of 5% now applies to the first 130 square meters of constructible residential space, provided the property’s total value does not exceed €350,000. This preferential rate is available only if the total constructible area of the residence remains under 190 square meters and the overall transaction value does not surpass €475,000.

Key Changes in the Legislation

Previously, the reduced VAT rate was applicable to the first 200 square meters of constructible residential space without any restrictions on the property’s total area or value. The new law introduces these limits to regulate the application of the reduced rate better.

Transition Period

An interim period has been established to facilitate a smooth transition. During this period:

  • Properties with a planning permit issued or an application submitted by October 31, 2023, will not be subject to the new provisions.
  • A fully completed application for the reduced VAT rate must be submitted to the tax department within three years of the law’s commencement date, ending on June 15, 2026.

This amendment aims to refine the application of reduced VAT rates, ensuring clarity and fairness for new residential construction projects. For more details or to confirm your eligibility under the new rules, consult with a tax advisor or the relevant authorities.

Frequently Asked Questions on VAT

VAT Reduction Application Guide

At Property in Limassol, we understand the importance of making property purchases more affordable. Individuals (not companies) can apply for a VAT reduction, lowering the VAT rate from 19% to 5% on properties intended for use as permanent residences. This benefit does not extend to properties intended for rental purposes.

Key Points of the VAT Reduction

Applicable Area:

The reduced VAT rate applies only to the first 200 square meters of the property. For any area exceeding this limit, the standard 19% VAT rate will apply.

10-Year Commitment:

To retain the full VAT discount, the property must be maintained as your primary residence for a minimum of 10 years. If you sell the property within this period, you will need to repay the VAT proportionate to the remaining years.

Before Submitting Your VAT Reduction Application

Ensure the following steps are completed:

  1. Property Contract: You must have signed the purchase agreement for the property.
  2. Land Registry Submission: The contract should be officially filed with the Land Registry.
  3. Property Usage Restrictions: Do not connect electricity under your name, furnish the property, or reside in it before the VAT reduction approval is granted.

VAT Payment Process

  • Initially, you will need to pay 19% VAT to the seller.
  • Once your VAT reduction application is approved, you will provide this approval to your developer, who will reimburse you the 14% difference. Any subsequent payments to the developer will then be subject to the reduced 5% VAT rate.

Other Important Questions

1. Can married couples apply for multiple VAT reductions?

No, married couples or those in civil partnerships are entitled to only one VAT reduction for a single property. Even if additional properties are purchased, only one application can be made between the couple.

No, the VAT reduction is strictly for properties intended as permanent residences. If the property is purchased for rental income (short or long-term) or under a company name, you will not qualify for the reduced VAT rate.

Yes, you may apply for VAT reduction on another property if:

  • You sell the property for which you received the previous VAT reduction.
  • Ten years have passed since receiving the initial VAT rebate.

Generally, VAT is applicable when purchasing land. However, certain exemptions exist based on specific legal criteria. For case-specific guidance, please contact our team at Property in Limassol.

  • For New Properties with VAT Paid: No transfer fees are required if VAT has been paid on the property.
  • For Resale Properties: For pre-owned (resale) properties, transfer fees must be paid, but VAT is not applicable.

For personalized advice or assistance with your VAT reduction application, feel free to reach out to our team at Property in Limassol. We’re here to guide you through every step of the process.

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