If you are considering purchasing a new home in Cyprus, one of the most important financial considerations is the Value Added Tax (VAT). While the standard VAT rate in Cyprus is 19%, a reduced rate of 5% can apply under certain conditions, significantly lowering the cost of your investment. Here is a breakdown of how the 5% VAT works and what has changed recently.
What Is the 5% VAT Rate?
The 5% VAT applies to the first 130 square meters of a primary residence, provided certain criteria are met. The remaining square meters, if any, are taxed at the standard 19% rate. This favourable tax rate is designed to support home ownership for first-time buyers and young families.
Who Qualifies?
To be eligible for the reduced 5% VAT, you must meet the following requirements:
- The property must be your main and permanent residence in Cyprus for at least 10 years.
- You must be a natural person (not a company).
- The property must be new (first-time sale) and not a resale.
- You must submit a timely application to the Tax Department before the property is delivered or occupied.
For non-Cypriot and foreign buyers, the 5% VAT rate is also available, provided the above conditions are fulfilled.
Key Limits and Rules (as of 2024–2025)
In late 2023, the Cyprus government amended the VAT law in response to EU guidelines. Here are the key changes currently in effect:
- The first 130 square meters of a new primary residence still qualify for the reduced 5% VAT.
- Any part of the property between 131 and 190 m² is taxed at the standard 19% rate.
- If the total size of the property is over 190 m², the entire property is taxed at 19%—not just the portion above the limit.
- The primary residence is up to €350,000 in value
- For properties priced between €350,001 and €475,000: The reduced VAT rate can still apply, but only on the first €350,000 of the property's value—and again, only for the part of the property up to 190 square meters.
- The applicant should not have had a Reduced Rate VAT certificate issued in the last 10 years.
- Persons with disabilities are entitled to a reduced VAT on property on the first 190 sq. m.
Application Process
To benefit from the 5% VAT, buyers must submit the following online to the Cyprus Tax Department:
- Contract of Sale (signed and stamped).
- Passport / ID copy
- Signed and scanned declaration from the architect/civil engineer
- Signed and scanned declaration from the Building Contractor
- Proof of payment to the Developer/Building Contractor
- Annual Contractor License for the construction period of the project
- Marriage certificate (if applicable)
- Planning / Building Permits and their applications
- Certificate of Buildable Area from the competent authority
- Signed and scanned declaration from the other applicant(s)
The process typically takes a few weeks and approval must be obtained before taking possession of the property.
Conclusion
The 5% VAT scheme makes buying property in Cyprus more accessible, especially for first-time buyers and families, but it is crucial to understand the rules and apply for the reduction in time to avoid paying the full 19% VAT.
Our law firm provides end-to-end legal support, from initial legal checks and contracts to handling your 5% VAT application. Whether you are a local or international buyer, we are here to guide you through a smooth and compliant purchase.
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.
