Filenews 4 April 2023 - by Eleftheria Paizanou
Without finally expanding the maximum area of houses and apartments that will benefit from a reduced VAT of 5%, the Ministry of Finance and parties seem to have come up with a formula to amend the pending bill, by increasing the values of properties that will be considered eligible. With the aim of increasing the beneficiaries of the 5% VAT (compared to the existing bill) and not losing market share to the entrepreneurs involved. The big issue, however, is whether the European Commission will accept the new differentiation, as it has already requested in writing the approval of the bill as it stands today.
Yesterday, at a closed-door meeting of the Finance Committee, the Government and the parties were informed that they had reached convergences. It was agreed, among other things, that a revised bill will be forwarded by the ministry after Easter, to be approved in May. And all this, a few days after the finance minister had appealed to the parties to approve the bill as it stands, otherwise the country risks facing sanctions from the European Commission or the Court of Justice of the EU.
The changes
According to information provided by "F", the first change in the bill will concern the increase of the maximum value of a main residence or apartment. Due to the increase in the price of construction costs by about 15% in 2022, the revised bill will include a provision for the reduced VAT to benefit residential values up to €400,000 and apartments up to €250,000. Today, the bill provides for the imposition of 5% VAT on the first 170 sq.m. of residences with a total area of up to 220 sq.m. and with a transaction value of up to €350,000. Also, reduced 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 €200,000. (With the change the value will rise to €250,000).
The Director-General of the Ministry of Foreign Affairs Finance Minister George Panteli said that after the approval of the bill by Parliament, the ministry will be able to argue to the European authorities for the adjustment of property values upwards, as last year (when the initial bill was prepared) the cost of construction materials was reduced by 15%.
Changes in ten years
The second change will concern the regulation of the ten years that beneficiaries are obliged to reside in the property they bought as their main residence with reduced VAT. Today, the law provides that those who take advantage of the reduced VAT and leave the property they use as their main residence before the age of ten years, return back to the state the difference between the standard rate of 19% and the reduced rate of 5%. With the differentiation promoted, the payment of additional VAT will be calculated according to the years someone has resided in the main residence.
The transition period is a turning point
The third change will concern transitional provisions, but the ministry proposes one thing and the parties want another. The bill includes a six-month transition period, which is not accepted by MPs. The ministry is reportedly proposing a transition period to cover those who have already applied to the VAT service to claim reduced VAT. The parties propose that the transition period should apply to those who have obtained a building permit or planning permission, regardless of whether they built the house or not. The Ministry of Finance does not agree with DISY's proposal to impose a 5% VAT on real estate worth up to €350,000 and from this value and above VAT to rise to 19%.
POINT OF VIEW
The excuses have dried up
Somewhat more balanced seems to be the formula agreed yesterday between the parties and the Government for 5% VAT on the purchase or construction of a main residence. On the one hand, the values of the properties that will benefit from the increase in construction costs are justifiably increased by 15% and on the other hand the area of real estate is not expanded. which is a red flag for Brussels. However, the transition period, i.e. when the new regime will enter into force, remains pending. Now there are no excuses and after Easter, one way or another, the issue will have to be closed, in the hope that the Republic will avoid sanctions from the EU.
