Filenews 2 August 2025 - by Eleftheria Paizanou
Despite the change and tightening of the legal framework for reduced VAT when buying or building a main residence, another 270 taxpayers fell into the networks of the Tax Department who, although they benefited from the 5% VAT, had an additional financial benefit as they rented luxury villas and apartments through Airbnb and booking.
In the last two months, officials of the competent department have continued in the campaigns while strengthening controls in the coastal areas and in the areas adjacent to universities. In fact, due to the upgrade of the Tax For All computerized system and its non-operation, another fifty taxpayers were recruited into the campaign, who proceeded in echelons to a new "safari" in the market.
Specifically, they proceeded to 1000 on-site inspections, finding that more than 270 taxpayers had taken advantage of the legislation of reduced VAT. According to the law, those who paid 5% VAT and do not use the property as their main residence, then pay the additional tax, i.e. an additional 14% VAT.
The taxpayers found that some properties that their owners initially stated that they would use as their main residence to receive reduced VAT, are in the process renting them to both Cypriots and tourists. The problem is more intense during the summer months in the coastal areas of the country where many foreigners had taken advantage of the properties and along the way left the island renting them out for financial benefit. There were cases of Cypriots who benefited from the 5% VAT but in the end did not use the properties as permanent residence but as holiday homes and then rented them every week through the electronic platforms. The same practice is applied in Nicosia and Limassol, where there are many universities. Taxpayers buy apartments, stating that they will use them as their main residence, but in the process they rent them to students, without anyone checking the total income they receive from such actions, as they often do not issue invoices.
Based on a risk analysis, the controls
In total, from 2022 to the first half of 2025, the Tax Department carried out thousands of on-site inspections, identifying 1,260 taxpayers who benefited from 5% VAT without being entitled. The state, through the imposition of VAT of 19% on these taxpayers (they paid 5% and in the course of time another 14%), ended up in the state coffers an amount of €69.5 million. The Commissioner of Taxation, Sotiris Markidis, told "F" that during the audits carried out in the last two months, 270 taxpayers were identified who violated the law. In fact, he said, some of them voluntarily went to the Department to pay taxes, resulting in the state collecting an additional amount of €18 million. He assured that in the immediate future, controls will be intensified in order to identify those who deceived the state, who had also made profits. Based on the data provided by the Tax Commissioner, in 2024 260 taxpayers who benefited from the reduced VAT were identified, who were subject to an additional tax of €15 million. Also, in 2023, as part of the campaigns, another 280 taxpayers were identified who paid an additional tax of €10.5 million. In 2022, 450 taxpayers were found to have violated the law as part of the audits, with the state collecting €26 million. The Commissioner of Taxation noted that the audits are now more targeted as they are carried out after a risk analysis through the use of electronic platforms.
The law before and now...
Under the previous legislation that was in place from 2016-2023, 5% VAT was imposed on the first 200 square meters (sq.m) of the property, regardless of the total area. In fact, this measure had also benefited many foreign investors in the framework of the Cyprus Investment Program, securing Cypriot citizenship. Due to the distortions and exploitation that existed, the Commission pulled the ear of Cyprus, which was in danger of imposing a severe fine, resulting in a change in the law. The new legislation, which had transitional provisions for two years, provides that 5% VAT is imposed on the first 130 sq.m. of a house/apartment, with a value of up to €350,000. At the same time, a staggered imposition of reduced VAT is also applied.
Specifically, for residences 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.
