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18th August 2022
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HomeLegal MattersPossible change in VAT on new dwellings

Possible change in VAT on new dwellings

Cyprus allows a reduced rate of VAT of 5% on the first 200 square metres of dwellings used as the principal and permanent residence by the beneficiary, without any other limitations.

This 5% reduced rate is applied regardless of the income, assets and economic situation of the beneficiary, the members of the family that will reside in the dwellings, and the maximum total area of the dwellings concerned.

In July 2021, the European Commission decided to send a letter of formal notice to Cyprus for its failure to properly apply EU VAT rules, which does allow EU Member States to apply a reduced rate of VAT on housing as part of a social policy. However, the wide scope of the Cypriot legislation and the lack of limitations indicate that the measure goes beyond the objective of a social policy.

Following the letter of formal notice, a bill that that reduces the VAT rate of 5% to the first 140 square metres of a dwelling was presented to parliament earlier this month. As explained in the memo accompany the bill, this change is in line with social policy and will therefore comply with EU Directive 2006/112/EC of 28 November 2006 on the common system of Value Added Tax.

In 2020 the Auditor General pointed out that the reduced VAT rate fell outside the framework of Cyprus social policy. He also pointed out that investors who bought properties under the (now defunct) ‘Golden Passport Scheme‘ would also pay VAT at the reduced rate and warned of the possibility that taxpayers would be asked to cover the VAT saved by those who bought property under the scheme. (Based on information available at the time, investors paid €125 million in VAT while at the standard rate of 19%, they would have paid four times the amount.)

However, the Cyprus Architects Association has now called on the government to “reconsider the bill”. It argues that that together with the increased costs of building materials, the reduction in VAT will create difficulties in starting new projects, delays in completing projects under construction and pressure to stop work.



  1. No need for such a change. Talk to EU accordingly. Not a good move for the Cyprus economy and it’s citizens,overall. Bad for the investors too.

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