Filenews 15 February 2023 - by Eleftheria Paizanou
The next steps of the Commission in relation to the reduced VAT on the purchase or construction of a main residence are expected to be informed on Monday by the members of the Parliamentary Committee on Finance. Today the deadline given by Brussels to the Republic to amend the legal framework expires. By Monday the government will know the intentions of the European authorities.
The briefing of the Parliament will be made by the Director General of the Ministry of Finance George Pantelis, who is expected to call again the members of the Parliamentary Committee on Finance to approve the bill.
On December 15, 2022, the European Commission in a letter had given an ultimatum to the Republic to change the legal framework until 15/2, as the existing regime that Cyprus has been applying for years violates the European directive. Under the relevant Directive, the reduced tax rate on the purchase or construction of a dwelling is granted for social purposes. In Cyprus, as is well known, 5% VAT is enjoyed by almost all new owners of main residences, regardless of area and value.
Last December, the EU warned that if the bill pending in Parliament was not approved within two months, it would move on to the next stage of the infringement procedure, which is to refer the country to the Court of Justice of the European Union. A competent source told "F" that all possibilities are open. He also said that the European Commission has not given time credit to Cyprus, but expressed the assessment that perhaps Brussels, due to the dead period that existed due to the elections, will give a few weeks additional time to the country.
On lit coals
However, the technocrats of the Ministry of Finance are sitting on burning coals, as it seems that Parliament will proceed with an amendment to the bill, as the majority of the parties have many reservations. The Ministry of Finance is concerned that in the event of additional changes there will be a problem with the European authorities.
The bill 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 a transaction value of up to €350,000. Also, reduced VAT will be imposed on the first 90 sqm of apartments, with a total area of up to 110 sqm and with a total value of up to €200,000. The parties do not seem to agree with the separation of real estate and at the same time demand that both areas and values be increased.
On the table and other suggestions
In parallel with the bill, AKEL's proposal for a law is expected to be discussed, with which the reduced tax rate will be granted depending on the square metres of the property. Also, caps are set on the value of the house per square metre, so that the construction, expansion and purchase of a house is subject to a reduced VAT rate. In addition, it is proposed to benefit from the reduced VAT of 5% and the extension of residence, which is done to cover the family needs that arise after the acquisition or construction of the residence, provided that the conditions set by law in relation to the area of the residence are met. Under the microscope of the Commission will also be put the proposal for a law by the MP of Ecologists Stavros Papadouris with which he proposes that the 5% be applied for the first 180 sq.m of the property with a total area of 220 sq.m. Also, in case of construction of a house, the value will not exceed €300,000 and in case of purchase of a house the value should be up to €450,000.
