They continue to cut and sew up parties for reduced VAT on buying or building a primary residence in an attempt to find a regulation that Brussels, which has disagreed with parliament's latest consensus proposals, would agree to.

After the new "no" received from the European Commission (EU) by Democracy to the parties' proposal for the imposition of 5% VAT on houses/apartments with a value of up to €350,000 and with an area of up to 190 sq.m., the debate starts all over again. This is because the Europeans cornered democracy, demanding that the reduced VAT be imposed on just 110 square meters of a house, which is 90 square meters less than today.


On Thursday, at an extraordinary meeting of the House Standing Committee on Finance, the parties will try to come up with a new proposal, which on the one hand will satisfy the Commission and will be consistent with the social purpose of the Directive and on the other hand will not substantially affect the real estate market and will not leave many interested parties out of the legal framework. According to F's information, 2-3 proposals are now on the table, including those previously rejected by Parliament. The common denominator of the parties remains the non-separation of apartments and houses and the uniform tax treatment for all types of housing. There is also a partisan consensus on the upper limit of the eligible value, but opinions differ on the area of the house that will benefit from 5% VAT.

As "F" is informed, the new formula being considered by the parties provides for the following:

  • Imposition of 5% VAT on the first 120 sq.m. of a residence, with a total area of up to 190 sq.m. and with a value of up to €350,000.
  • For houses with a value of €350 thousand. up to €475 mm and with an area of up to 190 sq.m., 19% VAT will be charged on the amount from €350 to 475,000. For houses worth more than €475,000 VAT will be 19% from the first square meter and from the first cent.

For this proposal, there are estimates that it is likely to be accepted by the Commission, as it is not far from the ceiling it proposes. In the next 24 hours, the new formula will be the subject of a new EU video conference with the Cypriot authorities. It is worth mentioning that some MPs disagree with the proposal, as they consider it to be at the expense of single-family homes.

On the table is also the proposal for the imposition of 5% VAT on the first 150 sq.m. of the residence, with a maximum of 190 sq.m and a value of up to €350,000. The EU has already opposed this proposal, but there are estimates that, if there is a proper argument, the European authorities will give the green light.

The third proposal under discussion concerns the third revised text of the bill, which was pushed through Parliament last month and separates detached houses and apartments. Specifically, it provides for the imposition of 5% VAT on the first 200 sq.m. of the buildable area of residences with a total area of up to 220 sq.m and with a transaction value of up to €385,000. At the same time, 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.  Meanwhile, the parties seem to agree with the arrangements agreed on transitional provisions. The fact is that a bill on this issue will be tabled in plenary on 8 June.

Will they pull it all the way to the Court?

As long as Parliament does not proceed with the adoption of a legislative regulation to harmonize with the social dimension of granting reduced VAT of 5% to main residences/apartments, the chances of Cyprus getting into adventures increase, even if some MPs seemed yesterday to underestimate this possibility.
During the last contact the Cypriot authorities had with EU technocrats, according to the Permanent Secretary of the Ministry of Finance George Pantelis, the latter announced that they will send a second letter of formal notice to the Republic in June (reasoned opinion). Within two months of receiving the letter, Cyprus will have to respond and argue to the EU about its intentions to amend the current law, which is not acceptable to the European Commission. According to Pantelis, in October the Commission – if the matter remains pending – will initiate the procedure before the Court of Justice of the EU. At the same time, he said that if new legislation is adopted, it will be re-evaluated by the EU to determine whether it complies with the European acquis.