The Cyprus VAT law (Law 95(I)/2000) provides that under certain conditions, a reduced VAT of 5% applies on buying/constructing first dwelling (house or apartment) instead of the normal rate of 19%.

On 16/06/2023, Law 42(I)/2023 was published on the Cyprus’s Government Gazette, amending the relevant sections of the VAT law on buying/constructing first dwelling in Cyprus, setting different criteria in order to be entitled to the reduced VAT rate.

The Previous Framework

Under the previous framework, which was in place until the 16^th of June 2023, individuals were eligible for the reduced VAT on their first dwelling on the first 200 square meters of the buildable area of the dwelling, provided the dwelling would be used as the applicant’s exclusive main residence in Cyprus for a period of 10 years.

The previous framework still applies to property for which a planning permit has been issued or for which an application for the planning permit has been duly filed with the relevant Authority until the 31^st of October 2023. Therefore, for such cases, the 5% reduced VAT rate will apply on the first 200 square meters.

The New Framework

The new framework sets out stricter criteria to essentially tighten the scope of the previous one. In particular, it reduces the square metres of buildable area of the eligible dwellings and imposes limits on the value of the eligible property.

Under the new framework, the following rules apply:

• Dwellings up to 130 square meters are eligible for the reduced VAT.
• Dwellings between 130-190 square meters are also eligible for the reduced VAT. However, in such case, the reduced VAT rate of 5% will only apply on the first 130 square meters and the VAT rate of 19% will apply on the remaining square meters.
• Where the dwelling satisfies the square meter criteria but has a value between €350.000 and €475.000, the VAT rate of 19% will apply on the amount exceeding €350.000, regardless of the square meters.

Applicants will not be entitled to the reduced VAT rate at all, if:

• The buildable area of the dwelling exceeds 190 square meters and/or
• The value of the property exceeds €475.000,00.

Exclusive main residence for 10 years

The precondition that the house/property must be the applicant’s exclusive main residence in Cyprus and that it must be used as such for 10 years, still applies.

Special rules for people with disabilities

Applicants with disabilities, as defined in the legislation, are entitled to the reduced VAT rate of 5% on the first 190 square meters of the buildable area of the dwelling.