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The 200 sq.m. Reduced VAT Rule in Cyprus: Transitional Only, Not Permanent

The reduced VAT rate of 5% on the purchase of brand-new residential property in Cyprus is subject to strict legal provisions. While the previous framework allowed the application of the reduced rate on the first 200 sq.m. of the buildable area, this benefit is transitional in nature and does not apply indefinitely.

Transitional Provisions – The “Old” 200 sq.m. Rule

The 200 sq.m. regime continues to apply only in cases where:

a) A planning permit was issued by 31 October 2023, or
b) An application for a planning permit was submitted by that date, and
c) A duly completed application for the imposition of the 5% reduced VAT rate is submitted within three (3) years from 16 June 2023.

New VAT Regime – Applications Submitted from 1 November 2023 Onwards

For all other brand-new properties, the new VAT regime applies as follows:

• 5% VAT applies only on the first 130 sq.m. of the buildable area, provided the total value of the property does not exceed €350,000.
• Where the value is up to €350,000, the reduced rate applies proportionally to the square meters between 130 and 190 sq.m.
• For properties valued between €350,001 and €475,000, the reduced VAT applies only on the portion of the value up to €350,000, proportionally to the square meters between 130 and 190 sq.m.
• Properties with a value exceeding €475,000 or a buildable area greater than 190 sq.m. do not qualify for the reduced rate.

Key Considerations

The distinction between the transitional provisions and the new regime is of significant financial importance, potentially affecting the overall purchase cost by a considerable margin. Prospective purchasers should therefore exercise due diligence and obtain professional advice before proceeding with a transaction.

For comprehensive guidance on the application of reduced VAT to property purchases in Cyprus, please contact Andreas Demetriades & Co LLC.

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