Filenews 15 February 2021
In relation to the reports that have been observed from time to time regarding the application of the reduced rate of VAT of 5% for the purchase or construction of a building intended to be used as a main and permanent place of residence in the Republic, the Department of Taxation informs the following:
For the application of the reduced VAT rate of 5%, explanations were requested from the Services of the European Commission in December 2020. The Tax Department responded to questions from the Commission which, in a recent communication, confirmed to the tax authorities Cyprus' compliance with the acquis communautaire in relation to the application of the reduced rate.
This treatment applies to all those who acquire permanent residence in Cyprus, whether they are Cypriots, European citizens or citizens of third countries.
Where it cannot be established that the property is used as the permanent residence of the person in the Republic, that person shall be required to pay the difference in the tax resulting from the reduced rate of VAT and the standard rate of VAT.
For the purposes of implementing the relevant legislation, the Tax Department shall carry out appropriate tax audits to establish the facts. The Registrar is the only person competent to examine each case individually and, after taking appropriate action and checks, will decide whether the property is used for purposes other than the permanent residence of the approved person in the Republic.
