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VAT break for young couples buying land for first home

Young couples buying land for their first home in Cyprus may only pay 5 per cent VAT on its purchase price rather than 19 per cent under a draft bill submitted to parliament by the government.

VAT break for young couples buying land in Cyprus for their first homeTHE GOVERNMENT has submitted a draft bill to parliament indirectly exempting from payment of 19 per cent VAT young couples who buy land for the purpose of building a primary residence.

The issue is related to the passage of a law last November imposing 19 per cent VAT on building land.

In its wake, persons buying a finished housing unit or apartment as their primary dwelling must pay 5 per cent VAT, whereas purchasing a plot of land for owner-occupied housing incurs a 19 per cent VAT charge.

Now, the new bill provides that, whereas newlyweds buying land for owner-occupied housing will pay the full tax rate, 14 per cent of the VAT imposed on the value of the land would be returned to them in the form of a grant so that ultimately, they only pay 5 per cent VAT.

Lawmakers meanwhile have tabled a legislative proposal aiming to eliminate a distortion where certain buyers of real estate must pay property transfer fees while others do not.

The bill was tabled by Disy MP Averof Neophytou.

When a person buys a new property in Cyprus and pays VAT on it, he or she is not subject to transfer fees, whereas transfer fees do apply when the transaction involves a land lease.

To end the distortion in the market, the proposal provides for the non-payment of transfer fees for rentals or leases of immovable property when the persons involved already pay VAT on taxable business activity.

But not all MPs are on board with the proposal, which was discussed during a closed-doors session of the House finance committee.

The Greens’ George Perdikis said his party would never consent to an arrangement letting developers “off the hook.”

Whereas the lease option might benefit entrepreneurship – by eliminating transfer fees – this should not be done at the expense of state revenues, he said.

“There is a large discussion going on about leases in which the church is involved, and we shall under no circumstances agree to the state taking a hit in order to serve the interests of a businessman, whoever he or she may be.”

After the VAT on building land was passed late last year, parliament brought regulations specifying which type of development would be subject to the tax.

Protected zones and farming land were exempted.

Readers' comments

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  • Pippa says:

    Would it not be advantageous to give an allowance to first time buyers of all the empty properties that are for sale? I know this is not the norm in Cyprus to buy a ready built house as everyone seems to want to build their own, but it could help the property market as well as enabling first time buyers to get on to the housing ladder.

    Ed: Most of the unsold property were built by developers (whose current NPLs amount to €3.4 billion or so.) My wife and I did look at ‘ready built’ houses when we decided to retire here – but I have to say their quality was not very good and they were very small and expensive. That’s why we bought a plot of land and had a house built to our own design and specification.

    The banks have repossessed many ‘decent’ houses – perhaps they could offer them to young first-time at a reasonable price.

  • MartynG says:

    Sounds shambolic – as usual!

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