Filenews 21 June 2025 - by Eleftheria Paizanou
It was well known that the new legal framework in relation to the reduced VAT on the purchase or construction of a main residence would not be applied immediately, i.e. from the day of its approval.
It was also known that for three years both legislations, the old and the new, would run at the same time.
Since the MPs themselves fervently demanded the inclusion of transitional provisions, with which some would continue to benefit from 5% VAT (including those who build millions of homes), so that the problematic legal framework would continue to be in force until 2026.
The transitional provisions, in fact, were one of the reasons that delayed the adoption of the legal framework, even though Cyprus for more than two years was at risk of being fined by the Commission, due to the fact that the legislation applied since 2016 was not harmonized with the social purpose of the European directive.
It is recalled that the transitional provisions provided that those who had applied for a planning permit from the beginning of June 2023 to October 31 of the same year, regardless of when the construction of the building will be completed, continue to save thousands of euros due to the previous legislation.
This means that someone may have submitted the planning permit for example in August 2023 and finally complete the construction of their residence in five years and will save thousands of euros from the 5% reduced VAT, however, the area of their main residence will be larger than that provided for by the law in force.
That is, it will build a mansion for millions in the long run, however, it will pay less money to the state.
Specifically, with the previous relaxed law of 2016, 5% VAT was imposed on the first 200 square meters (sq.m) of the property, regardless of the total area.
The new legislation provides that 5% VAT will be imposed (after the end of the transitional period) on the first 130 sq.m. of a residence/apartment, with a value of up to €350,000. At the same time, a staggered imposition of reduced VAT is also applied. For houses and apartments with an area from 131 sq.m. to 190 sq.m. and with a value of up to €475,000 19% VAT is imposed.
That is, for the first 130 sq.m. and for a value of €350,000, the VAT is 5%, while for the remaining 60 sq.m., up to 190 sq.m., the VAT is increased to 19%. For residences and apartments with an area of more than 190 sq.m. and with a value of more than €475,000 19% VAT will be imposed from the first square and the first cent.
So, since these are what the MPs have voted for, why is it surprising to some the millions of euros that the Republic has lost due to the continuation of the implementation of the legal framework?
Since they voted for the new law, incorporating the transitional provisions, why are they now asking -surprise- for their termination? Why didn't they do it earlier?
In any case, according to legal circles, in case of the abolition of the transitional provisions, the amendment will be deemed unconstitutional.
Another conclusion that can be drawn is that either once again the Republic has indirectly deceived Brussels, as it did not immediately stop the distortions of the legislation, or the European Commission has closed its eyes to the transitional provisions, as it itself benefits from the increased VAT revenues.
What is certain is that the state did indeed lose many tens of millions, in order to benefit home buyers who did not need the reduction with low VAT.
The Commission has consented to the new legislation approved by the Parliament in June 2023.
Therefore, it should not be surprising to the data of the Ministry of Finance, according to which in the last 19 months, 9,000 applications had been submitted for the provision of reduced VAT for properties of 200 sq.m.
If the state had imposed the normal VAT rate, i.e. 19%, it would have received €360 million.
Essentially, it was a common secret that with the formula that was voted on, the distorted payment of VAT to persons who are not beneficiaries would continue.
