Filenews 3 January 2023 - by Eleftheria Paizanos
The landscape still remains fluid in relation to the change in the legal framework for the reduced VAT of 5% on the purchase or construction of a main residence. An issue for which the Republic of Cyprus risks a fine of millions from the European Union (EU) due to the abuse found during the implementation of the European directive.
In particular, under the EU Directive, the reduced VAT rate is granted to beneficiaries for social purposes, which is not applicable in Cyprus, as the measure is almost universal, regardless of economic criteria. Following the ultimatum sent last month by the European Commission to the Republic, to close the matter by 15 February, the Cypriot authorities made representations in Brussels to secure additional time as, due to the presidential elections, Parliament does not meet, except for extraordinary meetings.
A competent source told "F" that, despite the demarches made by the Ministry of Finance, the European authorities still did not respond to the request of the Cypriot authorities to be given a certain weeks' time credit. As we have been told, the delay seems to be due to the Christmas and New Year holidays. It is estimated that in the coming days, after the return of European technocrats to their duties, a response is expected. Consultations are reportedly taking place at an informal level. On the Cypriot side, there is optimism that the steps being taken to gain some additional time from the EU will pay off.
Based on the latest letter sent by the EU to Cyprus, the authorities of the Republic will have to proceed with the amendment of the legal framework by the Parliament by 15 February. That is, three days after the second round of the presidential elections and the election of the new President of the Republic. A competent source said that due to the elections and the irregular functioning of the Cypriot Parliament, Brussels may give a few weeks' worth of time.
However, the controversial bill to regulate reduced VAT on the purchase or construction of a primary residence will be one of the first issues to be put before the House Finance Committee is expected to meet on February 18. Parliamentary circles told "F" that the Finance Committee is in consultation with the Ministry of Finance. As we have been told, if the pressure of the Cypriot side on the EU does not pay off and Brussels does not give additional time to the Republic, then the competent Parliamentary Committee will meet in extraordinary session to examine the bill. They also assured that the matter would be closed as soon as possible to avoid the country being fined or other sanctions.
EU insists on draft law
And in order for the Republic to gain additional time, the members of the Parliamentary Committee on Finance will have to find a formula with which the Commission, but also the parties and professional bodies, will agree. The European Commission seems to agree with the bill pending in Parliament, which provides for the imposition of 5% VAT 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. In addition, it provides that the criterion of the total type of residence will not apply to people with disabilities. According to the latest letter from the EU to the Republic, the draft law amending the legislation to address the breach of EU law effectively responds to the Union's concerns.
POINT OF VIEW
No more delay
In the event that Brussels consents to additional time with the Cypriot authorities, the issue of the reduced VAT rate on the purchase or construction of a main residence should be closed as soon as possible. Once the presidential elections are over, it will be easier for the parties to find a formula which, on the one hand, is in line with the social purpose of the directive and, on the other, does not disrupt the real estate market. There should be no further delay, as the EU will not continue to turn a blind eye and will move on to the next stage of the infringement procedure, which is the reasoned opinion and the referral to the Court of Justice of the EU for pecuniary sanctions.
