Filenews 24 August 2022 - by Eleftheria Paizanou
Even for the purchase of a floor apartment in a tower, worth €14.5 million, the... social measure of the reduced VAT of 5%, according to the report of the Audit Office on the Cyprus Investment Program, gives an indication of the great abuse that took place.
This act, like hundreds of others, is clearly contrary to the European VAT Directive, which allows Member States to apply a reduced VAT rate to housing, but within the framework of a social policy. Due to the dismantling of the relevant Cypriot legislation in 2016, the scope of the law was and remains much broader, with the result that the Commission reacted and launched an infringement procedure against the Republic of Cyprus.
Under the current legal regime in Cyprus, whether a house is 200 square metres (sq.m.) or 1000 sq.m., for the first 200 sq. m. - and regardless of value - the buyer pays reduced tax!
Blatant cases
- According to the findings of the Audit Office, the buyer of the opulent apartment of €14.5 million, with a total area of 555 sq.m., paid €2 million. VAT, while the state lost €732,000, due to the implementation of the "social measure".
- In another case, an investor bought an apartment of 339 sq.m at a price of €5 million. Due to the reduced VAT for the first 200 sq.m., public revenues of €360,000 were lost, while for the remaining 189 sq.m., the buyer paid VAT worth €590,000. This particular apartment was sold in the meantime and the benefit from the reduced VAT was returned to the Republic. According to auditing, this is the third time that the investor has applied for and received approval for reduced VAT! In fact, all three times in retrospect he cancelled the deed...
- For the purchase of another apartment, again in a tower, worth €4.7 million, with an area of 169 sq.m., the investor paid only 5% VAT. The buyer paid VAT of €237,656, while the state lost €665,438.
- For the purchase of a villa of 230 sq.m. at the Limassol marina, an amount of €4.5 million was paid. The buyer paid VAT €311,000 and the state lost €554,713.
It is recalled that through the abuse of the EU Directive, a total of 1,298 investors benefited, who bought properties worth €1.6 billion, while the total loss of revenue for the state was at least €204 million.
There were no control mechanisms
The Audit Office found that there were no appropriate control mechanisms in place to prevent the abuse of the reduced VAT measure. In particular, 115 investors who bought properties by paying reduced VAT, secured houses with a value of less than €500,000, an amount that the investment program set as a threshold. In addition, out of the cases of reduced VAT rate associated with the JEP, 88 entries related to the same investor name (44 investors) were identified, which were applied for and approved twice. Also, 28 registrations (14 investors) were identified for which applications were submitted by both the investor and persons with the same name as his/her spouse. From a search of the files of the Tax Department (a total of 116 files – 58 cases), the Audit Office found that in most cases a second application was submitted by the same person, or spouse.
ACCREDITATION
They ate without stopping
The more one reads the Report of the Audit Office, the more one becomes enraged. For someone who reads them for the first time he is surprised, for those who carried out these acts and for others who approved them, the feast that was set up was long ago known. The more people put their finger on honey, the more they sweetened. They constantly wanted more. At the expense of the state and the honest citizens, they earned millions. If one looks at the minutes of the Parliament in 2016, the reasons and who benefited when the legislation on reduced VAT was changed at that time are clearly shown. Will anyone be punished this time?
