Filenews 10 February 2022 - by Eleftheria Paizanos
Although the changes that the Commission may accept on the bill for the - targeted - reduced tax rate during the purchase or construction of a main residence are limited, the inclusion of the criterion of value per square meter (square meter) is estimated by the government and parties to be a safeguard to avoid abuse of the measure, it will also be a testament to the EU that it will also serve the social purpose of reduced VAT, as required by the European directive.
According to information provided by "F", the thoughts that are now being made by the government foresee that both the criterion of 140 sq. m. (and on this area the reduced rate of 5%) and that of the value per sq. m. should be met, so as not to benefit and relatively small houses (less than 140 sq.m.) that are sold expensively, for a variety of reasons.
The bill that is pending in parliament provokes strong reactions mainly from professional bodies, but also from some parties. It provides for the imposition of 5% VAT on the first 140 sq. m. of a property, with a total area of up to 200 sq. m.
The thoughts that are being made by some parties - and to some extent they are shared by the Ministry of Foreign Affairs - are also shared by the Ministry of Foreign Affairs. Finance - is to include the additional condition concerning the value of the property per sq.m. Specifically, if the value per sq. m. exceeds the value to be determined per sq.m., then the reduced tax rate will not be utilized. However, the value of the square meter for each region will not be calculated differently (although there are differences in prices per region). For taxation purposes, a single value per square meter will be established.
According to data from the Statistical Service, the value of the square meter has been set at €1015. For example, if a buyer buys a property that meets the requirements of the total area and 140 sq.m. but the value of the sqm is higher than €1015 (if this will be the price that will be determined finally) then he will not be entitled to make use of 5% of the VAT. In this way, it is estimated that it is ensured that buyers who will proceed to the purchase of luxury apartments and residences will not benefit from this social measure.
In this way, the concerns of parties who argued that with the bill as tabled will be able to pay reduced VAT and people with high incomes, who choose to buy a high-value apartment, will also be allayed.
Under the current legal framework (which is contrary to the European Directive and has led to an infringement procedure against the Republic by the Commission), foreign investors, within the framework of the Cyprus Investment Program, bought apartments of millions in coastal areas - even in luxury towers - paying only 5% VAT.
The additional safety valve (ceiling of value per square meter) that may be included in the bill, may also satisfy the European Commission, as it reinforces the social purpose of the measure. According to Finance Minister Constantinos Petrides, if the EU consents to changes, they should not disrupt social policy.
They do not accept a sq.m. increase.
It should be noted that what is a given is that the European authorities will not accept an increase in the square meters that will benefit from a reduced VAT (140 sq.m.), nor the ceiling of the total area (200 sq.m.).
A few days ago, in parliament, some professional bodies had suggested the return of the regime of 2016, which imposed 5% VAT on the first 200 sq. m. of the property, with a total area of 275 sq. m. Today a reduced VAT is imposed for the 200 sq. m. of the property, without there being a limit on the area, something that caused the anger of the Commission when it realized it, with a long delay.
Meanwhile, the Ministry of Finance continues to be negative on the issue of the transitional provision (postponement of the entry into force of the law) demanded by most parties, which argue that additional costs will be borne on young couples who have already begun procedures for the purchase or construction of a first home.
Risk of millions returning to the EU
On Monday, the discussion of the bill will continue in the Parliamentary Committee on Finance, in the presence of Finance Minister Konstantinos Petrides. Following the decision of the ministerial meeting the day before yesterday at the presidential palace, under the President of the Republic, the government is expected to consult with both the parties and the EU on finding a formula on the basis of European guidelines. All the suggestions submitted by the parties are expected to be examined by the Ministry of Finance, so as to find the most appropriate proposal that is in line with the European directive, so as not to be rejected by the Commission, which feels strongly against the Cypriot authorities for the application, for years, of reduced VAT without any substantial social criteria and even with a lack of information to it.
It should be remembered that if the violation of the VAT Directive, which also leads to a reduction in the Union's own resources, continues, then the EU will be entitled to receive the full amount of the specific own resources lost, as well as default interest! This translates into millions of euros, which the Republic will be forced to pay.
