The Cypriot parliament has passed a law allowing for a reduced value-added tax (VAT) rate of 5% on first homes. The discounted rate will apply to the first 130 square meters of a first home, up to a value of €350,000, as long as the total value of the transaction does not exceed €475,000 and the total buildable area does not exceed 190 square meters. Individuals with disabilities will benefit from a discounted VAT rate on the first 190 square meters of the buildable area. The law includes a transitional period for cases where town planning permits have already been issued or applied for within four months of the law’s implementation.

The vote in parliament was nearly unanimous, with 42 MPs voting in favor and one abstaining. However, there was disagreement among politicians about who was responsible for the need to change the legislation and the potential penalties from the European Commission. The law was passed under pressure from Brussels due to previous misuse of the reduced VAT threshold, which led to the European Commission initiating infringement proceedings against Cyprus.

The European Commission sent a reasoned opinion to Cyprus, stating that the country had not correctly applied EU VAT rules for houses bought or built in Cyprus. Cyprus had two months to address the issue, or the case could have been referred to the EU Court of Justice. The infringement proceedings were initiated in 2021. The Cyprus policy of applying the lower VAT rate for first homes was seen as exceeding the social policy aim stated in the EU VAT directive.

It was also revealed that recipients of Cyprus’ ‘golden passports’ scheme, who invested in property to obtain citizenship, had benefited from the lower VAT rate.

Source :  Law on first homes reduced VAT passed – Cyprus Property News (cyprus-property-buyers.com) 

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