Filenews 10 December 2023 - by Eleftheria Paizanou
The situation changed from November 1 in the field of real estate, as restrictions were introduced on the measure of imposing 5% VAT instead of 19% on the purchase or construction of a main residence.
Now, the measure has taken a greater social form, as required by the European directive, while those who want to benefit from the reduced VAT will have to build or buy smaller main residences/apartments.
Essentially, Cyprus, through this measure, should gradually adjust the areas of main houses/apartments on the basis of European standards. The change in the legal framework took place last June, as the country was at risk of being fined by the European Commission, due to the abuse of the measure, which in fact was almost universal and benefited even millionaire foreign investors under the Cyprus Investment Programme and wealthy Cypriots, who instead of using the property as their main residence. They rented it for financial gain.
What's True
According to a circular by the Commissioner of Taxation Sotiris Markides, the new legislation provides for the imposition of 5% on the first 130 square meters (sqm) of buildable area of the property up to the value of €350,000.
In cases where the value is up to €350,000, 5% VAT is applied, in proportion to the square meters of the buildable area when it is over 130 sq.m. and up to 190 sq.m.
In case the value of the house is from €350,000 up to €475,000, the reduced VAT rate will be imposed on the value up to €350,000, and in proportion to the sq.m. of the buildable area, when it is over 130 sq.m and up to 190 sq.m. That is, in this case, from the 60 additional sq.m. but also for the additional €125,000 value VAT will be in the order of 19%.
More relaxed are the provisions for people with disabilities, according to which 5% VAT is applied for the first 190 sq.m. of the residence. Meanwhile, for residences where the total transaction value for the main residence exceeds €475,000 19% will be levied on the entire amount of the residence or the value of the construction of the residence.
In the case of large families, which have at least four children, the total area of the dwelling increases both in the case of construction and in the purchase of a house for each additional child of 15 sq.m.
Also, there is no differentiation in the value limits of €350,000 and €475,000 with the increase in the total area due to children. For residences where the transaction value exceeds €475,000 19% VAT is charged on the entire purchase amount or construction value of the residence.
It is noted that 5% VAT will not apply to residences / apartments over 190 sq.m. and the total value exceeds €475,000. In these cases, 19% VAT will be charged on the entire amount and value of the residence.
Transitional provisions
In the meantime, according to the transitional provisions, in order for someone to benefit from 5% VAT under the previous regime (5% VAT on 200 sq.m regardless of area), he had to submit an application to the Town Planning Authority by October 31, 2023 to obtain planning permission.
"Provided that the above applies, the applicant is granted a period of 3 years from June 16, 2023 (date of publication of the law) to submit a duly completed solemn declaration for the imposition of 5% VAT for the purchase or construction of a residence for the first 200 sq.m of buildable area based on the planning permit submitted on October 31, 2023," the circular clarifies.
Examples of VAT application
The Tax Department cites specific examples in the circular to make the legislation easier to understand:
- If the buildable area of the house / apartment is €350,000 and the solemn declaration is submitted for example in January 2024, or in the corresponding month of 2025, 2026, the value of the transaction charged with 5% VAT will be €350,000. Therefore, in this case the VAT paid by the taxpayer will be €17.500.
- If the total buildable area is 150 sq.m. and the value €350,000, then the value of the transaction that is charged with 5% VAT will be €303,300, while in the remaining €46,600 19% VAT will be charged. That is, the taxpayer will pay a total of €24,000 VAT, of which €15,100 correspond to 5%
- If the buildable area is 120 sq.m and the value of the transaction is €370,000 the total VAT to be paid will be €21,300. That is, 5% VAT will charge the value up to €350,000 corresponding to €17,500 and 19% VAT will be imposed on the remaining €20,000 corresponding to €3,800.
- If the buildable area is 160 sq.m and the value of the transaction will be €330,000 the total VAT that the taxpayer is required to pay will be €25,100. That is, 5% VAT will be imposed on the transaction value of €268,100 corresponding to €13,400 and 19% of the transaction value of €61,800 corresponding to €11,700.
- If the buildable area is 160 sq.m and the value of the transaction is €370,000 the total VAT to be imposed will be €30,487. Specifically, 5% will be charged on the value of the transaction of €284,375 corresponding to €14,200 while 19% will be imposed on €85,600 equivalent to €16,200.
- If the buildable area is 191 sq.m and the value of the transaction is €479,000 . It will be €91,000 VAT at 19% and will be calculated on the total area of the property.
For large families and people with disabilities
The amounts of tax that large families will pay vary. For example, if a family with five children buys a house with an area of 190 sq.m and a value of €475,000, it will pay VAT of €48,900.
That is, 5% VAT will be charged on the value of the transaction up to €294,700 (€14,700 VAT) and 19% will be charged for the balance ie €34,200 VAT).
Otherwise, if a large family with five children buys a house with 220 sq.m and a value of €475,000 the total VAT he will have to pay will be €54,600. That is, 5% will be imposed on the transaction value of €254,500 (corresponds to € 12,700 VAT) and 19% on balance. (corresponds to €41,800 VAT).
It is noted that a large family with the same composition buys a property with an area of 230 sq.m and a transaction value of €475,000 19% charge of €91,000 will be levied on the entire transaction.
People with disabilities
If a person with a disability buys a property with a total area of 230 sq.m. and a value of €475,000 then the total VAT he will pay will be €35,300. That is, he will pay 5% VAT, ie ,€19,600 estimated on €392,300 transaction value and 19% VAT of €15,600 estimated on balance.
If the specific person buys or builds a property of 170 sq.m. with a value of €460,000 only 5% VAT will be charged on the total transaction. The amount of tax will be paid will be €23,000.
In addition, if a person with disabilities who has seven children buys a property of 180 sq.m at the price of €480,000, he will pay 19% VAT of €91,200. VAT will be charged on the total amount of the transaction.
