Filenews 7 June 2023 - by Eleftheria Paizanou
Last Thursday, the Government submitted to Parliament a (new) bill, which limits the concession of reduced VAT of 5% to the first 110 sq.m. for main residences and apartments, informing that this is the position of the European Union. Commission.
Yesterday, the Minister of Finance, in a letter to the Finance Committee, informs that the Government will support the bill that will be voted (probably tomorrow) by the Parliament and which will raise to 130 sq.m. the area that will be charged with 5% VAT, knowing that there is a possible reaction from Brussels, even a referral of Cyprus to the Court of Justice of the EU. On Thursday, the Republic received a reasoned opinion from the European Commission, the second stage of the infringement procedure against the state.
Whatever the House says...
Despite the fact that the legislation promoted by the parties is contrary to European recommendations, the Ministry of Finance informed Parliament yesterday that it will support any decision of the Parliament.
The majority of the parties demanded the agreement of the Government on the legislation prepared in the Finance Committee.
The Minister of Finance, Makis Keravnos, in a letter sent yesterday to the members of the Finance Committee, stresses that "the Ministry considers that the proposal submitted by the Government to the Committee is the appropriate solution under the circumstances, especially when it is approved by the EU, according to their letter dated 15/12/22".
At the same time, he indicates that the Government, weighing all the facts and noting that no one can pre-empt the approval of the competent EU authorities, will respect, as a matter of principle, the proposal formulated by the majority of parties in the Finance Committee. "The government will support this proposal in the relevant EU institutions," Keravnos adds.
In addition, a competent source told us that when the new legislation is approved, the President of the Republic, Nikos Christodoulides, does not intend to proceed with the referral of the law. Therefore, as soon as the President signs the law, the text will be sent for inspection to the European authorities to see if it is in line with the social purpose of the European VAT Directive. If Brussels agrees to the law to be passed, it will stop the proceedings it has initiated against Cyprus. If they do not agree, the process will continue.
On the 1st of the month, together with the reasoned opinion, the EU informed the Republic that it must respond within 2 months on the actions it will take to comply with the European Directive.
According to
information provided by "F", the parties unanimously decided to incorporate a provision in the bill (which will be submitted on Thursday for approval to the Plenary of the Parliament), according to which 5% VAT will be imposed on the first 130 square meters (sq.m.) of residence/apartment, with a value of up to €350,000. At the same time, provision will be made for the gradual imposition of reduced VAT, so that those who will buy larger in area and value houses will pay more for the extra area, without losing the right to benefit from reduced VAT for the remaining area.
Specifically, the bill amended by the parties will provide that for the area from 131 sq.m. to 190 sq.m. and with a value of up to €475,000 19% VAT will be charged. That is, for the first 130 sq.m. and for a value of €350 thousand. VAT will be 5%, while for the remaining 60 sq.m., up to 190 sq.m., VAT will increase to 19%. For houses and apartments with an area of more than 190 sq.m. and with a value over €475,000 19% VAT will be charged from the first square meter and the first cent.
It is recalled that the latest revised bill promoted in Parliament by the Ministry of Finance, provides for the imposition of 5% VAT on the first 110 sq.m. of a detached house / apartment with a value of up to €350,000, provided that the total value of the transaction does not exceed €475,000 and the total buildable area is up to 190 sq.m.
They may even ask us for interest
The Minister of Finance was clear in his letter to Parliament yesterday, stressing that there is a visible risk that Cyprus will be taken to Court and fined if it does not comply with the VAT Directive, as time limits have run out (the infringement procedure started in July 2021).
"In such a case, the European Commission may claim to receive the full amount of own resources, plus interest for late payment, lost as a result of the reduction in own resources, in accordance with Article 12 of the Regulation," Keravnos concludes.
