Who Still Gets the Reduced 5 Per Cent VAT on a Cyprus Home

A buyer of a new home in Cyprus is quoted two very different figures depending on one question: does the purchase carry VAT at nineteen per cent or at five. On a price of 350,000 euro the difference between the two rates is forty nine thousand euro. The reduced rate is not a developer's concession and it does not come with the contract. It is a claim the buyer makes, on a prescribed form, against conditions set out in Table C of the Fifth Schedule to the VAT Law 95(I)/2000, and it carries an obligation that runs for ten years after the keys change hands.

Law 42(I)/2023 narrowed those conditions on 16 June 2023. The route that preserved the older and more generous treatment closed with it, and what remains of that route is an examination period that ends on 31 December 2026.

The reduced rate is claimed, not granted. It rests on a declaration the buyer signs, and on a state of affairs the buyer has to keep true for ten years.

What the reduced rate actually covers

Section 18 of the VAT Law charges VAT at five per cent on any transaction falling within the Fifth Schedule. Table C of that Schedule is headed "delivery or erection of a residence" and covers three things: the delivery of a building or part of one, including the plot bought with it or an undivided share in it, where the delivery takes place before first installation in the building; the transfer of possession of such a building under a sale agreement, under an agreement expressly providing for a future transfer, or under a lease with a right of purchase, again before first installation; and the erection of a building or part of one on building land specially designed for use as a principal and permanent residence, before first installation in it.

In each case the building must be used as a principal and permanent residence in the Republic, and a duly completed application for planning permission must have been filed with the appropriate authority after 1 May 2004, or, where a general or special order under the Town and Country Planning Law dispenses with planning permission, a duly completed application for a building permit after that date.

Table C also treats as erection three cases that are easily missed: a refugee building a home at their own expense on government land they have been licensed to use, a home built on a government plot granted on favourable terms to a family in need, and a home built on building land belonging to a relative of the builder within the fourth degree of kindred or affinity.

Everything outside the Schedule carries the standard rate, which section 17 has set at nineteen per cent since 13 January 2014.

The limits, and the cliff edge inside them

The second subparagraph of paragraph 3 of Table C, as replaced by Law 42(I)/2023, applies the reduced rate to the first 130 square metres of buildable area of the residence, as determined on the building coefficient according to the architectural plans submitted for planning permission, and up to a value of 350,000 euro, provided that the total value of the transaction does not exceed 475,000 euro and the total buildable area does not exceed 190 square metres.

Read that as three separate tests. The first is a ceiling on how much of the purchase enjoys the reduced rate: 130 square metres and 350,000 euro. The second and third are conditions of entitlement, and they behave differently. A residence of 200 square metres, or a transaction of 500,000 euro, does not get the reduced rate on the first 130 square metres and the standard rate on the rest. It falls outside Table C altogether, and the whole of it is charged at nineteen per cent.

Two departures are written into the same paragraph. For a person with a disability, a term Law 42(I)/2023 also defined in section 2 of the VAT Law, Table C applies to the first 190 square metres of buildable area irrespective of the total buildable area of the residence. For a family with at least four children, the total area of the residence is increased by fifteen square metres for each additional child beyond three. The value of the transaction may itself be revised by notice of the Tax Commissioner following a decision of the Council of Ministers.

Who the buyer has to be

Table C defines the eligible person as a natural person who has reached the age of eighteen on the date of the application, who acquires the residence for use as a principal and permanent residence in the Republic, who has no other residence in the Republic acquired at the reduced rate, and who has repaid any grant received under the Special Grant (Acquisition or Erection of a Residence) Law as that Law required.

A married person may apply for one residence only, and where a married person files the declaration, a declaration of the spouse has to be filed at the same time stating that the spouse owns no other residence in the Republic used as a principal and permanent residence.

The requirement of a principal and permanent residence in the Republic is the one that decides most cases involving buyers who live abroad. A home bought to be let, to be used for holidays, or to be held while the owner lives elsewhere is not within Table C, whatever its size or price.

The claim, and the paperwork that supports it

The eligible person files a declaration in the special form the Commissioner prescribes by notice in the Official Gazette. It may be filed at any stage during the erection of the residence or, on a delivery, before the residence comes into the eligible person's possession. The Commissioner may permit a declaration within twelve months of possession where he is satisfied, on full supporting material, that absence from the Republic, illness or another event sufficiently explains the delay.

The declaration is accompanied by the sale contract or, on an erection, the building contract; evidence of the erection; architectural plans including the area measurement; a certified copy of the application filed with the appropriate authority for planning permission or, where none is required, for a building permit; and a declaration by the contractor that he holds the annual licence of the class and category of the corresponding building or technical work. Evidence that the applicant uses the residence as a principal and permanent residence, which the Schedule says may be a telephone, water, electricity or local authority tax bill, is filed within twelve months of taking possession and forms an inseparable part of the application.

The applicant receives a certified copy of the application and hands it to the seller of the residence, or on an erection to the contractor, who is then obliged to charge the reduced rate. That is the mechanism by which the rate reaches the invoice. Where it later emerges that the person was not eligible, the Schedule makes them liable for the full amount of the tax.

Ten years, and what breaks them

Where an eligible person ceases to use the residence as a place of residence before ten years have passed, they must notify the Commissioner within thirty days of the date they ceased and pay the difference between the tax at the reduced rate and the tax at the standard rate, as those rates stood at the delivery or erection, corresponding to the period for which the residence was not self-occupied. Two situations are excepted: the death of the eligible person, and a transfer by the eligible person to an adult child of theirs, where that child is an eligible person at the time of the transfer.

Law 42(I)/2023 changed what happens when a buyer wants to move. A person who has exercised the right, under Table C or under repealed provisions of the VAT Law, may exercise it again for another residence before the ten years have passed, provided they comply with the clawback subparagraph and irrespective of section 63. The second home is therefore available, but only on the footing that the first one is settled.

The old regime, and the date attached to it

A building caught by the older and more generous rules keeps them only if its planning application was in by 31 October 2023 and the buyer's declaration was filed in time. That is the effect of section 63, which Law 42(I)/2023 inserted into the VAT Law: the 2023 amendments do not apply to buildings for which planning permission had been obtained from the appropriate authority, or for which an application for planning permission had been filed, by 31 October 2023, and for which the duly completed declaration under the fourth subparagraph of paragraph 3 of Table C is filed within three years of the date that Law came into force.

Law 42(I)/2023 was published in the Official Gazette on 16 June 2023 and carries no separate commencement provision, so the three year period it opened has run. Law 109(I)/2026, published on 24 April 2026, added a proviso to section 63: the Tax Commissioner may examine applications made under that section until 31 December 2026 where their examination was not completed in time because of delay on the part of the planning authorities. That is an extension of the time for examining a claim already made, not an extension of the time for making one.

What this means in practice

1. Check the buildable area on the plans, not the floor area in the brochure. Table C measures buildable area determined on the building coefficient according to the architectural plans submitted to the appropriate authority. A covered veranda counted one way on the plans and another way in a sales sheet is the difference between a transaction inside and outside the 190 square metre limit.
2. Watch the two outer limits before negotiating anything else. A price of 480,000 euro is not a slightly worse outcome than 470,000 euro. It moves the whole transaction to nineteen per cent.
3. File the declaration in time. On a delivery it is filed before the residence comes into your possession. The twelve month indulgence after possession is discretionary and has to be explained and documented.
4. Keep the ten year obligation in view when circumstances change. A move abroad, a letting, or a sale within ten years triggers a notification within thirty days and a payment. Where the destination is another home, the right can be exercised again, on the footing that the first one is accounted for.
5. If your matter has been sitting with the Tax Department under the old rules, ask where it stands now. The section 63 route depends on a planning application made by 31 October 2023 and a declaration filed in time, and what remains open is the examination of claims already made, until 31 December 2026.
6. Do not treat the reduced rate as a term of the contract. The seller charges it because a certified copy of your application has been handed over. The eligibility, and the liability if it fails, are yours.

The VAT position is one of the figures that decides what a purchase actually costs, alongside the transfer fees on a resale. Our Cyprus Property Transfer Fees and VAT Calculator sets the two against each other, and the guidance on buying off plan and on property deals with the contract terms that sit around them.

Questions we are asked

Sources

• The Value Added Tax Law of 2000, 95(I)/2000, consolidated text, CyLaw
• The Value Added Tax Law of 2000, section 18, reduced rate, CyLaw
• The Value Added Tax Law of 2000, section 63, transitional provisions, CyLaw
• The Value Added Tax (Amending) Law of 2023, 42(I)/2023, Official Gazette 4949 of 16 June 2023
• The Value Added Tax (Amending) Law of 2026, 109(I)/2026, Official Gazette 5089 of 24 April 2026

This article is provided for general information purposes only and does not constitute legal advice.

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