Filenews 23 April 2023 - by Eleftheria Paizanou
The third revised bill on reduced VAT on the purchase or construction of a main residence does not fully satisfy the interested professional bodies in Cyprus, although it increases, as requested, the beneficiaries.
Through the revised bill, the values of houses and apartments that will be eligible for reduced VAT have been increased by 15% and the eligible area of residences (not apartments) has been expanded by 20 sq.m. Market participants have intensified pressure on parties over the past 24 hours to pass their positions at tomorrow's session of the House Finance Committee, through a new amendment to the bill.
There is turmoil in the market, as affected entrepreneurs and other professionals in the construction sector consider that the bill does not correspond to the real market data and that it excludes certain categories of citizens from the beneficiaries. They argue, among other things, that the bill will hurt the real estate market, calling on parties to make additional improvements. The revised bill already seems to be accepted by the European Commission, which has even told the Cypriot authorities that it will hardly accept additional changes that will change the philosophy of the European directive, according to which 5% VAT is granted for social purposes.
What are affected people asking for?
As "F" is informed, the Land Development Entrepreneurs believe that the changes in the bill are not enough to address the problems that will be caused in the market. They stress the need for the application of a proportional system, similar to that applied to income tax. That is, to impose a reduced VAT of 5% for a specific value limit, while for the rest of the price to apply the standard rate, without restrictions or exclusions. In fact, they warn that if the bill passes as it stands, it will be far from the values of properties on the market. They also believe that many citizens will resort to renting houses and apartments, which will further raise rent prices.
For its part, the Cyprus Property Owners Association (KSIA) disagrees with the separation of apartments and houses. He cites specific examples, according to which a couple to buy an apartment worth €390,000 will pay €74,100 VAT while for the construction of a house total cost (land and construction) €450,000 will pay VAT €22,500. For its part, the Association of Large Developments stresses that the bill needs further upgrading and amendments. He warns that if the legislation is adopted as it stands, many of our citizens will not be able to benefit from the reduced VAT rate, resulting in either being excluded from the social measure or weakening the urban fabric, as many will be looking for real estate solutions outside cities. The ETEK disagrees with the transitional provisions included in the bill, pointing out that the fairest approach would be for the transitional provision to concern the time of submission for planning permission, which requires that a series of actions have already been taken by the applicants.
The changes made
The revised bill provides for the imposition of 5% VAT on the first 200 sq.m. of the buildable residential area, with a total area of up to 220 sq.m and with a transaction value of up to €385,000. Also, 5% VAT will be imposed for the first 90 sq.m. apartments, with a total area of up to 110 sq.m. and with a total value of up to €220,000. The new regulations will not apply to buildings for which a building permit has been obtained from the competent authority, even within four months of the implementation of the law. The parties will attempt to increase the value of the houses to €400,000 and apartments at €240,000 with €250,000 and increase somewhat the sq.m of apartments. To the transitional provisions will be added houses that have already obtained planning permission.
