VAT ON THE PURCHASE OF FIRST PROPERTY IN CYPRUS: WHEN TO APPLY 5% AND WHEN 19%

Under pressure from the European Commission, which requires those who want to benefit from reduced VAT to build or buy relatively small houses and apartments, Cyprus changed the VAT calculation system for residential property purchases starting November 1, 2023. This innovation applies only if the property being purchased is the first and main residence of the buyer and their family.

NEW VAT CALCULATION SYSTEM FOR FIRST RESIDENTIAL PROPERTY

Explanations by Sotiris Markides, Head of the Tax Department of the Republic of Cyprus

Area up to 130 sq.m. and cost up to 350,000 euros — 5%
Area up to 190 sq.m. and cost up to 350,000 euros: 5% on 130 sq.m., 19% on the remaining sq.m.
Area up to 130 sq.m. and cost up to 475,000 euros: 5% on 350,000 euros, 19% on the remaining amount
Area up to 190 sq.m. and cost up to 475,000 euros: 5% on 130 sq.m. and 350,000 euros, 19% on the additional square meters and amount
Area over 190 sq.m. and cost over 475,000 euros — 19%.

VAT CALCULATION EXAMPLES

The Tax Department provided several examples to understand the system of applying reduced (5%) or full (19%) VAT.

Area of 100 sq.m., cost 350,000 euros
A 5% tax of 17,500 euros is applied

Area of 150 sq.m., cost 350,000 euros
Explanation: To make calculations, the cost per sq.m. of the property needs to be determined. For example, if the area of the property is 100 sq.m. and it is sold for 200,000 euros, then 1 sq.m. will cost 2,000 euros (200,000 euros divided by 100 sq.m.).

5% tax is applied to 130 sq.m. costing 303,333 euros. The remaining 20 sq.m. costing 46,667 euros is subject to 19%. The taxpayer will pay VAT of 24,034 euros: 15,167 euros (5% tax on 303,333 euros of property value) + 8,867 euros (19% VAT on 46,667 euros of property value).

Area of 120 sq.m., cost 370,000 euros
The taxpayer will pay VAT of 21,300 euros. A 5% tax of 17,500 euros is applied to the first 350,000 euros of the property value. A 19% VAT of 3,800 euros is applied to the remaining 20,000 euros of the total property value.

Area of 160 sq.m., cost 330,000 euros
The VAT to be paid is 25,162 euros. A 5% tax of 13,406 euros is applied to 130 sq.m. costing 268,125 euros. The remaining 30 sq.m. costing 61,875 euros is subject to a 19% tax of 11,756 euros.

Area of 160 sq.m., cost 370,000 euros
The VAT applied to this property unit is 28,212 euros. A 5% VAT of 15,031 euros is applied to 130 sq.m. costing 300,625 euros. Then 15,031 euros is added to 13,181 euros, resulting from a 19% tax on the remaining 30 sq.m. costing 69,375 euros.

Area of 191 sq.m., cost 479,000 euros
In this case, the entire property value is subject to a 19% VAT of 91,010 euros.

EXCEPTIONS

The legislative system of the Republic of Cyprus provides additional tax benefits for the purchase of the first home by large families and people with disabilities. For example, if a family with five children buys a house with an area of 190 sq.m. costing 475,000 euros, they will pay VAT of 48.9 thousand euros.