When purchasing a dwelling in Cyprus that is used as the primary and permanent residence, the reduced VAT rate of five percent (5%) applies. To be eligible for this benefit, certain conditions must be met, which we will explain in this article. At the end of the article, detailed examples will be provided to illustrate the calculation of the reduced VAT rate for various scenarios.
I. Transitional provisions
The amending law enacted Article 63 of the VAT Law, which introduces transitional provisions that apply the provisions of the VAT Law 95(I) of 2000, in force before the publication date of the amending law.
Specifically, under these provisions, the reduced VAT rate of five percent (5%) is applied to the acquisition or construction of dwellings for the first 200 m² of buildable area, as determined by the building permit issued up to October 31, 2023, based on the building density coefficient in the architectural plans submitted to the competent authority to obtain a building permit or in the application for a building permit submitted to the competent authority up to October 31, 2023. If the above conditions are met, the applicant is granted a three-year period from June 16, 2023 to properly submit a sworn declaration for the application of the reduced VAT rate of five percent (5%) on the purchase of the dwelling for the first 200 square meters of buildable area, based on the building permit issued up to October 31, 2023 or the application for a building permit submitted up to October 31, 2023.
II. When the reduced VAT rate of five percent (5%) does not apply
Under the amending law, effective from June 16, 2023, the reduced VAT rate of five percent (5%) does not apply to housing if:
- The total area exceeds 190 m², or
- The total value of the dwellings exceeds €475,000.
For dwellings whose buildable area exceeds 190 square meters or whose total value exceeds €475,000, the standard VAT rate is applied to the full purchase price or the construction cost of the dwelling.
III. Application of the reduced VAT rate of five percent (5%)
The provisions of the amending law establishing the reduced VAT rate of five percent (5%) apply to the first 130 m² of buildable area up to a value of €350,000.
For transactions where:
- The value is up to €350,000, the reduced VAT rate applies pro rata to the area in square meters that exceeds 130 m² and up to 190 m².
- The value ranges from €350,001 to €475,000, the reduced VAT rate is applied on the value up to €350,000 pro rata to the buildable area in square meters that exceeds 130 m² and up to 190 m².
IV. Provisions for Persons with Disabilities
For persons with disabilities (as defined in Article 2 of the amending law), the reduced VAT rate of five percent (5%) applies to the first 190 square meters of the dwelling’s area, regardless of the total area of the dwelling. If the total value of the transaction exceeds €475,000, the standard VAT rate applies to the entire cost of purchasing or constructing the dwelling.
V. Provisions for Large Families
For large families (families with at least four children), the total floor area of the dwelling is increased by 15 m² for each additional child beyond three, both for purchase and for construction of the dwelling. The value thresholds of €350,000 and €475,000 remain unchanged despite the increase in total area due to the children. If the total value of the transaction exceeds €475,000, the standard VAT rate applies to the entire amount of the purchase or construction cost of the dwelling.
VI. Acquisition of Another Dwelling Before Ten (10) Years Have Elapsed
In accordance with the article of the amending law published in the Official Gazette of the Republic on June 16, 2023, the ninth paragraph of paragraph 3 of Table G of the Fifth Schedule of the VAT Law 95(I) 2000 has been amended as follows:
A person who has exercised the right to acquire a dwelling with a reduced VAT rate may exercise this right again for another dwelling before the expiration of ten (10) years, provided the difference between the tax amounts arising from applying the reduced rate and the standard rate for the period during which the dwelling was not used as a primary residence is paid.
Suppose the right to apply the reduced VAT rate for the purchase or construction of a dwelling has been approved, and a new Sworn Declaration for another dwelling is submitted before the expiration of ten (10) years. In that case, the period is calculated from the date of the new declaration, with an addition of up to 24 months for receipt of the new dwelling. The new Sworn Declaration may be submitted at any stage during the construction of the dwelling or before the delivery of the purchased dwelling.
Example 1
Property area: 130 m²
Transaction value: €350,000
Persons with disabilities: No
Large family (number of children): No
Date of submission of the sworn declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to reduced VAT rate 5%: €350,000.00
Transaction value subject to standard VAT rate: €0.00
VAT calculation:
5% VAT on €350,000: €17,500
Total VAT: €17,500
Example 2
Property area: 150 m²
Transaction value: €350,000
Persons with disabilities: No
Large family (number of children): No
Date of submission of the sworn declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to reduced VAT rate 5%: €303,333.33
Transaction value subject to standard VAT rate: €46,666.67
VAT calculation:
5% VAT on €303,333.33: €15,166.66
19% VAT on €46,666.67: €8,866.67
Total VAT: €24,033.33
Calculation method:
(130 m² / 150 m²) × €350,000 = €303,333.33
€350,000 − €303,333.33 = €46,666.67
Example 3
Property area: 120 m²
Transaction value: €370,000
Persons with disabilities: No
Large family (number of children): No
Date of submission of the sworn declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to reduced VAT rate 5%: €350,000
Transaction value subject to standard VAT rate: €20,000
VAT calculation:
5% VAT on €350,000: €17,500
19% VAT on €20,000: €3,800
Total VAT: €21,300
Calculation method:
(120 m² / 120 m²) × €350,000 = €350,000
€370,000 − €350,000 = €20,000
Example 4
Property area: 160 m²
Transaction value: €330,000
Large family (number of children): No
Date of submission of the sworn declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to reduced VAT rate 5%: €268,125
Transaction value subject to standard VAT rate: €61,875
VAT calculation:
5% VAT on €268,125: €13,406.25
19% VAT on €61,875: €11,756.25
Total VAT: €25,152.50
Calculation method:
(130 m² / 160 m²) × €330,000 = €268,125
€330,000 − €268,125 = €61,875
Example 5
Property area: 160 m²
Transaction value: €370,000
Persons with disabilities: No
Large family (number of children): No
Date of submission of the sworn declaration: e.g, January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to a reduced VAT rate of 5%: €284,375
Transaction value subject to the standard VAT rate: €85,625
VAT calculation:
5% VAT on €284,375: €14,218.75
19% VAT on €85,625: €16,268.75
Total VAT: €30,487.50
Calculation method:
(130 m²/160 m²) × €350,000 = €284,375
€370,000 − €284,375 = €85,625
Example 6
Property area: 191 m²
Transaction value: €479,000
Persons with disabilities: No
Large family (number of children): No
Date of submission of the sworn declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to reduced VAT rate 5%: €0.00
Transaction value subject to standard VAT rate: €479,000
VAT calculation:
5% VAT on €0.00: €0.00
19% VAT on €479,000: €91,010.00
Total VAT: €91,010.00
Example 7
Property value: €475,000
Large family (number of children): 5
Date of submission of the sworn declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to reduced VAT rate 5%: €294,736.84
Transaction value subject to standard VAT rate: €180,263.16
VAT calculation:
5% VAT on €294,736.84: €14,736.84
19% VAT on €180,263.16: €34,250.00
Total VAT: €48,986.84
Calculation method:
(130 m² + 15 m² + 15 m²/ 190 m²) × €350,000 = €294,736.84
€475,000 − €294,736.84 = €180,263.16
Example 8
Property area: 220 m² (190 m² + 15 m² + 15 m²)
Transaction value: €475,000
Persons with disabilities: No
Large family (number of children): 5
Date of submission of the sworn declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to reduced VAT rate 5%: €254,545.45
Transaction value subject to standard VAT rate: €220,454.55
VAT calculation:
5% VAT on €254,545.45: €12,727.27
19% VAT on €220,454.55: €41,886.36
Total VAT: €54,613.63
Calculation method:
(130 m² + 15 m² + 15 m²/ 190 m²+ 15 m² + 15 m²) × €350,000 = €254,545.45
€475,000 − €254,545.45 = €220,454.55
Example 9
Property area: 230 m²
Transaction value: €475,000
Persons with disabilities: No
Large family (number of children): 5
Date of submission of the sworn declaration: e.g., January 2, 2024, January 2, 2025, or January 2, 2026
Transaction value subject to reduced VAT rate 5%: €0.00
Transaction value subject to standard VAT rate: €475,000
VAT calculation:
5% VAT on €0.00: €0.00
19% VAT on €475,000: €90,250.00
Total VAT: €90,250.00
Calculation method:
Because the buildable area of 230 m² exceeds the maximum area allowed for a large family with 2 children, which is 220 m² (190 m² + 15 m² + 15 m²), the reduced VAT rate does not apply.
Example 10
Property value: €475,000
Large family (number of children): No
Persons with disabilities: Yes
Date of submission of the sworn declaration: e.g, January 2, 2024, January 2, 2025, or January 2, 2026.
Taxable transaction value subject to reduced VAT rate of 5%: €392,391.30
Taxable transaction value subject to the standard VAT rate: €82,608.70
VAT calculation:
VAT 5% on €392,391.30: €19,619.57
VAT 19% on €82,608.70: €15,695.65
Total VAT: €35,315.22
Calculation method:
(230 m²/190 m²) × €475,000 = €392,391.30
€475,000 − €392,391.30 = €82,608.70
Example 11
Property area: 170 m²
Transaction value: €460,000
Persons with disabilities: Yes
Large family (number of children): No
Date of submission of the responsible statement: e.g, January 2, 2024, January 2, 2025, or January 2, 2026.
Transaction value subject to reduced VAT rate of 5%: €460,000
Transaction value subject to the standard VAT rate: €0.00
VAT calculation:
VAT 5% on €460,000: €23,000
VAT 19% on €0.00: €0.00
Total VAT: €23,000
Calculation method:
(170 m²/170 m²) × €460,000 = €460,000
€460,000 − €460,000 = €0.00
Example 12
Property area: 230 m²
Transaction value: €475,000
Persons with disabilities: Yes
Large family (number of children): 7
Date of submission of the responsible statement: e.g, January 2, 2024, January 2, 2025, or January 2, 2026.
Transaction value subject to reduced VAT rate of 5%: €392,391.30
Transaction value subject to the standard VAT rate: €82,608.70
VAT calculation:
VAT 5% on €392,391.30: €19,619.57
VAT 19% on €82,608.70: €15,695.65
Total VAT: €35,315.22
Calculation method:
(190 m²/230 m²) × €475,000 = €392,391.30
€475,000 − €392,391.30 = €82,608.70
In this example, the applicant will be guided by the criterion that provides the smallest VAT burden, which is the criterion for a person with a disability and not for a large family.
Example 13
Property area: 185 m²
Transaction value: €480,000
Persons with disabilities: Yes
Large family (number of children): 7
Date of submission of the sworn declaration: e.g, January 2, 2024, January 2, 2025, or January 2, 2026.
Transaction value subject to reduced VAT rate of 5%: €0.00
Transaction value subject to the standard VAT rate: €480,000
VAT calculation:
VAT 5% on €0.00: €0.00
VAT 19% on €480,000: €91,200
Total VAT: €91,200
Calculation method:
Since the transaction value exceeds €475,000, the standard VAT rate applies to the entire amount.
