AKEL has proposed a bill scrapping the 5% reduced VAT rate for foreign nationals buying or building homes in Cyprus.
The bill, put forward by MP Giorgos Loukaides, suggests changing the Value Added Tax Law so that third-country nationals can no longer benefit from this lower tax rate.
The proposal argues that this tax break has been misused, leading to unfair advantages for foreign buyers.
Instead of helping middle and lower-income families as intended, the reduced VAT has encouraged large-scale property purchases by foreign nationals. This has contributed to rising housing prices, making it harder for locals to afford homes.
According to the proposal, removing the tax break would help control property prices and prevent further housing shortages. It would also reduce financial losses for the state, ensuring that public funds are used more effectively.
Support should go to those who need it, not foreigners
Mr Loukaides highlighted that, in recent years, there has been a sharp increase in foreign nationals, particularly wealthy investors and high-earning professionals, buying property in Cyprus. This trend has worsened the housing crisis by pushing up demand and prices.
He pointed out that AKEL MPs had recently raised these concerns in the Parliamentary Interior Committee. As part of broader efforts to address the issue, the party has now officially proposed ending the reduced VAT rate for foreign buyers.
Loukaides explained that the goal is to ensure that tax benefits are only given to those who truly need support. He criticised past and current governments for applying the tax reduction too broadly, allowing it to be exploited in ways that harm local buyers.
He emphasised that VAT reductions should be part of the state’s social policy, helping lower and middle-income families rather than benefiting foreign investors. He argued that, for too long, the government has prioritised wealthy investors over ordinary citizens struggling to afford housing.
This seems rather foolish. The main reason that the construction industry, a main stay of the economy and all the allied industries that support it, including post sale purchases to make a house a home, is the very sale of properties benefiting from VAT reduction. Stop those sales, you will reduce the flow of construction investment and likely reduce the overall tax take. Its not just the Lower VAT on the property that needs to be under consideration.
I would also argue it’s a form of racism “Foreigners”
Properties benefitting from reduced VAT are already capped based sqm the property, which supports those buying at the lower end of the value spectrum. If the country starts to restrict building supply, prices and rents will go up which has the opposite affect of supporting low and middle income earners.
Hi David, the 5% reduced VAT on new homes only applies to first homes, providing they’re the main residence of the purchaser. It does not apply to holiday homes.
As you say, the discounted rate applies to the first 130 square metres of a first home – for single dwellings and apartments alike – and up to a value of €350,000, provided that the total value of the transaction does not exceed €475,000 and that the total buildable area does not surpass 190 square metres.
Another clause provides that, for persons with a disability, the discounted VAT will apply to the first 190 square metres of the buildable area.
VAT directive 2017/541 allows EU member states to apply a lower rate for first homes as part of social policy. But the broad interpretation of the Cyprus provision apparently exceeded the social policy aim stated in the directive, for such an exemption.