EU Approval Paves the Way for Reduced VAT on First Homes in Cyprus

The European Commission has granted approval for the implementation of a reduced 5% VAT on first homes in Cyprus, marking a significant milestone in the country’s real estate landscape. Finance Minister Makis Keravnos announced the news, attributing the success to the tireless efforts of the finance ministry. 

This decision by the European Commission’s Directorate-General for Competition is a result of their acceptance of the reduced VAT scheme, which was passed by the Cyprus parliament last June. The scheme applies to the first 130 square meters of a first home, whether it’s a single dwelling or an apartment, and is applicable up to a value of €350,000. However, it’s crucial to note that the total transaction value should not exceed €475,000, and the total buildable area must not surpass 190 square meters. 

For individuals with disabilities, there’s an additional provision that extends the discounted VAT to the first 190 square meters of the buildable area, offering further support and inclusivity. 

The law also includes a transitional period, ensuring that the new rules don’t apply in cases where a town planning permit has been issued or an application for a town planning permit has been filed within four months of the law’s entry into force. 

The journey towards this approval began when, on 1st June of the previous year, the European Commission sent a reasoned opinion to Nicosia, highlighting the non-compliance of EU VAT rules for houses bought or built in Cyprus. With a deadline of two months to address the matter, the potential consequences included a referral to the European Court of Justice or the imposition of fines for non-compliance. 

VAT directive 2017/541 allows EU member states to apply a lower rate for first homes as part of social policy. However, the broad interpretation of the Cyprus provision apparently exceeded the social policy aim stated in the directive. Notably, concerns were raised when it was revealed that recipients of the now-defunct ‘golden passports’ scheme, who invested in property for citizenship, had also benefited from the lower VAT rate. 

This approval marks a positive turn for the real estate sector in Cyprus, providing potential homeowners and investors with an attractive opportunity to benefit from reduced VAT rates on their first homes. 

Source: Cyprus Property News 

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