Filenews 13 December 2022 - by Eleftheria Paizanou
Fear brings hell! This fits in the case of reduced VAT of 5% when buying or erecting a first main residence. According to information from "F", a significant number of taxpayers who have benefited from the reduced VAT, alarmed by the compliance campaign conducted since the beginning of October by the Tax Department, rush on their own to the competent Department and arrange the payment of the additional VAT.
These taxpayers, whether intentionally or unwittingly, have abused this social measure. This is because many buyers of real estate, whether they were villas of millions, holiday homes, apartments or houses that they rented in the process for financial gain, paid reduced taxation instead of the normal 19%.
According to the European directive, the Member States of the European Union should apply the measure for social purposes, which, as it seems, is not the case in Cyprus, as the on-the-spot - targeted - checks carried out by the Tax Department have shown that one in three auditees has abused the measure. These taxpayers, when they bought the property, had paid 5% VAT and when they go to the competent department they pay an additional 14%, so that they are charged the standard VAT rate of 19%.
As "F" is informed, among the taxpayers who contacted the Tax Department were Cypriot and foreign buyers, including investors, who under the Cyprus Investment Program had bought properties of a few million euros. In addition, the buyers who paid or arrange to pay the difference of the reduced VAT are pensioners and civil servants.
A typical case was the case of a foreign taxpayer, who contacted tax collectors, informing them that he will have to pay an additional 14% VAT, which corresponds to €72,000. In this way, the state's receipts are further strengthened.
It is recalled that, from October 3, 2022 to November 27, officers of the Department carried out a total of 1,741 on-the-spot checks and in 794 "main residences" were identified to reside specific persons. From these, it appeared that 275 should not benefit from the 5% VAT, resulting in additional taxation, totalling €16.2 million. The compliance campaign of the Tax Department continues and new announcements are expected soon from the Ministry of Finance on the results of the audits. However, the checks show that it is necessary to change the legislation, as it does not serve its social purpose. After all, that is why the Commission has for 18 months now initiated infringement proceedings against the Republic. It is reminded that, today, those who buy properties that they use as their main residence pay 5% VAT on the first 200 square metres, regardless of the total area of the property. The bill that is in the drawers of the Parliament provides that the imposition of 5% VAT will be made only on the first 170 sq. m. of houses, with a total area of up to 220 sq. m. and with a transaction value of up to € 350,000. Also, a reduced VAT of 5% will be imposed for the first 90 sq. m. of apartments, with a total area of up to 110 sq. m. and with a total value of up to €200,000. The previous bill provided for the imposition of a reduced VAT rate of 5% for residences with a maximum area of 140 sq.m.
