Filenews 6 November 2021 - by Eleftheria Paizanos
Following the commission's last July and the infringement procedure it initiated against the Republic, the government is likely to return to the previous tax arrangement that was in place before November 2016, compared to the reduced tax rate of 5% when buying or building a main residence.
The Commission, in its letter of formal notice, argues that the use of the reduced tax rate on real estate, as is done in Cyprus, does not serve social purposes (foreign investors who bought villas also benefited), which obliges the Cypriot authorities to consider now plan b. Now, the reduced tax rate is applied for social purposes for Cypriot citizens for the first 200 sq.m., regardless of the total area or the total value of the dwelling.
Previously, the law provided that the reduced VAT rate of 5% is imposed for the first 200 sq. m. of buildable residential areas of a total land of 275 sq.m.
During yesterday's discussion of a law proposal of AKEL, which provides that no reduced VAT will be offered for high-value residences, the government side once again expressed its disagreement and revealed its next steps. Before the House Standing Committee on Finance, senior VAT officer Naya Symeonidou said that the universality of the reduced tax rate measure had resulted in the EU questioning its social purpose. He said the Republic sent its response to the Commission's letter of formal notice last September, noting that the finance ministry is in consultation with the EU to formulate a new legal framework that will meet social policy.
