Cyprus Vat On First Homes: Legislative Reform And Extension Of Transitional Relief To 31 December 2026

For many individuals and families in Cyprus, purchasing or constructing a primary residence is one of the most significant financial decisions they will undertake. The acquisition of a newly built home in Cyprus is directly subject to Value Added Tax (VAT).

This article provides a consolidated overview of the legislative changes, the current regime, and the extended transitional framework.

The Cyprus VAT framework applicable to the acquisition or construction of a primary residence has undergone significant reform in recent years. While the amendments introduced stricter eligibility criteria for the reduced VAT rate, transitional provisions were implemented to protect individuals who had already initiated the process under the previous regime. Most recently, on 17 April 2026, the Cyprus Parliament approved a further extension of these transitional provisions, providing additional time for eligible taxpayers to benefit from the more favourable pre-existing rules. This extension was published in the Official Gazette of the Republic of Cyprus (issue Number 5089 ) on Friday 24^th of April 2026.

The standard VAT rate in Cyprus is 19% and applies to the first sale of newly built properties, typically from a developer to a purchaser. For social policy reasons, the Cypriot Government allows the application of a reduced VAT rate of 5% for individuals acquiring a property to be used as their primary and permanent residence, which can significantly reduce the total cost of purchase.

However, in recent years, and specifically in 2023, the legal framework has changed.

The 2023 legislative amendments, published on 16 June 2023, introduced stricter criteria and a new regime for applying the reduced VAT rate of 5% on a primary residence. Under the framework introduced in 2023: The reduced VAT rate of 5% applies to the first 130 square metres of the buildable residential area of a qualifying property, subject to a maximum property value of €350,000 and provided that the total buildable residential area does not exceed 190 m2 and the total value of the transaction does not exceed €475.000.

For properties with a buildable area between 131 and 190 square metres and a value of up to €475,000, a graduated VAT regime applies. Under this structure, the 5% rate applies only to the first 130 square metres, while the remaining square metres are subject to the standard VAT rate of 19%.

Any property with an area exceeding 190 square metres, or where the property value exceeds €475,000, is subject entirely to the standard VAT rate of 19%.

In practical terms, the benefit is now more targeted and is no longer available for larger or higher-value properties in the same manner as under the previous regime.

Alongside the new legislation, a transitional period was introduced to protect developments that had already commenced. These provisions apply to Individuals who had obtained, or submitted, a town planning permit application before 31 October 2023; or Individuals acquiring property from a developer who had obtained, or submitted, a town planning permit application before that date. The transitional provisions were originally set to expire on 15 June 2026.

However, on 17 April 2026, the Cyprus Parliament approved an extension of this deadline to 31 December 2026.This extension constitutes a significant development, allowing eligible buyers additional time to benefit from the previous VAT regime.

Such individuals may continue to benefit from the pre-2023 regime, under which:

• The 5% VAT rate applies to the first 200 m² of the property.
• No restriction applies to the total floor area.
• No restriction applies to the value of the property.
• The completion date of construction is irrelevant.
• VAT at the rate of 19% applies only to any area exceeding 200 m².

Without doubt, these terms are more favourable than those under the new framework and allow larger homes to benefit significantly from the reduced rate without value limitations but will only apply to eligible properties up until 31 December 2026

It is important to note that, as from 1 January 2027, all taxpayers will be subject exclusively to the new VAT regime. As from that date, the pre- 2023 reduced VAT scheme for 200 m² will be permanently abolished, only the new 130 m² framework will apply and larger properties will be taxed to a greater extent at the standard 19% VAT rate.

This change may significantly increase the final purchase cost, particularly for medium-sized and larger homes.

Before proceeding with the purchase of a newly built home, careful consideration should be given to the date of the application of planning permit or the date of issuance of the planning permit, the total square metres of the property and the agreed purchase price. These factors determine whether an individual may benefit from the reduced VAT rate and if so whether the individual can benefit for the pre 2023 regime.

VAT constitutes a key factor in the overall cost of acquiring immovable property. In many instances, the difference between the applicable regimes may amount to tens of thousands of euros. Accordingly, proper information and timely evaluation of the relevant property parameters can have a material impact on the overall investment.

The application of the reduced 5% VAT rate for primary residences in Cyprus continues to represent a significant financial advantage for purchasers of newly constructed properties. However, the transitional period permitting the application of the previous regime is approaching its conclusion.

Although the revised framework is more restrictive, the transitional regime—now extended—continues to present a valuable opportunity for eligible applicants. Qualification is subject to strict criteria and specific timeframes. Timing is therefore critical; eligibility should be assessed at an early stage, and the structuring of the transaction requires careful consideration. In light of the financial implications involved, each case should be evaluated on its particular facts prior to proceeding

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.