Understanding the VAT framework is a critical part of the property-buying process in Cyprus. Buyers intending to acquire a primary and permanent residence may qualify for a reduced VAT rate of 5%, instead of the standard 19%. This preferential rate can significantly reduce the overall cost of purchasing a home, but it applies only under specific legal conditions.
The following guide outlines the current requirements, based on the VAT Amendment Law published in the Official Gazette of the Republic on 16 June 2023 and the detailed explanations provided in industry analyses. It is designed to assist prospective buyers in determining whether they are eligible for the reduced rate.
When the Reduced 5% VAT Applies
The reduced VAT rate applies exclusively to the purchase or construction of a primary and permanent residence. Buyers must intend to use the property as their main home.
In line with the amended VAT Law 95(I)/2000, eligibility is determined by a combination of property size and property value, as follows:
Property Size Criteria
- Up to 130 m² of buildable area qualify fully for the 5% VAT.
- Between 131 m² and 190 m², the 5% VAT applies proportionally.
- Above 190 m², the reduced rate does not apply at all.
Property Value Criteria
- Up to €350,000, the reduced VAT applies fully or proportionally.
- €350,001 to €475,000, the reduced VAT applies proportionally.
- Above €475,000, the property is not eligible for the reduced VAT under any circumstances.
Special Provisions for Specific Groups
People with Disabilities
For individuals meeting the legal definition of disability under the law:
- The reduced VAT applies to the first 190 m², regardless of the total size of the residence.
- If the property value exceeds €475,000, the standard 19% VAT applies to the full amount.
Large Families
For families with at least four children:
- The qualifying area increases by 15 m² for each child beyond the third.
- The value limits (€350,000 and €475,000) remain unchanged.
- If the total buildable area exceeds the maximum permitted area after adjustments, the reduced VAT cannot be applied.
Acquiring a Second Home Within Ten Years
A person who has previously benefited from the reduced VAT rate may acquire another primary residence within ten years, provided they:
- Repay the VAT difference for the period during which the first property was not used as their primary residence.
This ensures consistent application of the VAT benefit while allowing flexibility for buyers whose housing needs change.
How the Reduced VAT Is Calculated
The proportional method of calculation applies when a home exceeds 130 m² but remains within the allowable limits.
Example:
- Area: 150 m²
- Value: €350,000
Calculation:
- Eligible portion: (130 / 150) × €350,000 = €303,333.33 (taxed at 5%)
- Remaining: €46,666.67 (taxed at 19%)
Why Understanding VAT Rules Matters
The difference between paying 5% and 19% VAT on a property can amount to tens of thousands of euros.
For example:
- A €350,000 property taxed entirely at 5% results in €17,500 VAT.
- The same property taxed at 19% results in €66,500 VAT.
Understanding eligibility is therefore essential for financial planning and informed decision-making.
How We Support Buyers
At Sakyrco, we assist prospective homeowners by:
- Assessing their eligibility for the reduced VAT rate
- Clarifying transitional provisions for developments with earlier planning permits
- Advising on special categories, including large families and individuals with disabilities
Our objective is to ensure that every client receives the maximum benefit available under current legislation.