Individuals and families looking to acquire real estate in Cyprus may benefit from the reduced VAT scheme currently in place for first-time home buyers. Cyprus law provides for a reduced VAT rate of 5% when constructing or purchasing a new house or apartment, which is intended for use as the main and permanent residence of the purchaser.
According to guidance issued by the Tax Department, the new tax regime applies when purchasing newly-erect houses (which have not yet been inhabited), when constructing a house and when purchasing a plot of land for the construction of a residence. The said VAT incentive is intended to encourage and facilitate home ownership and applies to all individuals, irrespective of nationality.
It should be noted that the property for which a reduced VAT coefficient will apply must be used as the permanent residence of the purchaser. The scheme imposes an obligation for purchasers to maintain ownership and residency in the property for a period of at least 10 years. In the event where the purchaser wishes to sell the property before the 10-year period elapses, a payment will need to be made to the Tax Department in proportion to the period for which the property was not used by the purchaser.
When the scheme was first introduced, a cap was in place limiting the scope of its application to residences up to 275 m2. This cap has now been removed and there is no longer a limitation as to the size of the property to be acquired. Bear in mind, however, that the tax reduction applies to the first 200 m2 of the residence and any area above that will be taxed at the normal VAT rate of 19%.
There are currently no restrictions on the value of the property to be purchased, nor is the income or financial status of the purchaser taken into account. To qualify for the reduced VAT rate, the applicant should not already have ownership of a house in Cyprus, although having ownership of land does not interfere with his/her right to apply for the above tax break.
An application for the abovementioned scheme can be submitted within the first 6 months of occupation of the acquired property.
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