Cyprus Changing its Regime on Reduced VAT for First Homes: an Update

The newly formed Cyprus Government and the House of Representatives reached an informal agreement to resolve the issue of the imposition of a reduced VAT rate of 5% for the purchase or construction of a first home and the much-debated is scheduled to be brought before the Plenary of the Parliament for a vote, immediately after Easter.

The EU Commission, having launched an infringement proceeding against Cyprus, has given Cyprus until the end of March to change its legislation on reduced VAT on the purchase or construction of a first home.

The newly appointed Minister of Finance, Makis Keravnos, emphasised that the deadline for the regulation of the issue by the Commission has expired and the notification from the European authorities for referral to the EU court and the imposition of sanctions on our country is on the way. Minister Keravnos stated that “without delay, the House of Representatives should vote on the bill to avoid any adverse consequences for the country.”

According to the Cyprus VAT legislation, as it stands, the reduced VAT rate of 5% applies for homes up to 200 sqm of buildable area on the purchase or construction of a first home without any other conditions.

The EU Directive states that member states can introduce reduced VAT at 5% on dwellings up to 140 sqm. The EU claims that the Cyprus government did not use the legislation as a social contingency measure in a targeted manner.

The latest proposed bill that was submitted to Parliament envisaged the imposition of 5% VAT on the first 170 sqm. of the houses with a total area of up to 220 sqm. and with a transaction value of up to €350,000. Also, reduced VAT was to be imposed for the first 90 sqm. of apartments with a total area of up to 110 sqm. and with a total value of up to €200,000. This bill was rejected by the House of Representatives.

The same bill is scheduled to be tabled next Monday in the Finance Committee of the House of Representatives, while it is estimated that the parties will submit amendments, among other things to increase the value of the real estate that will be subject to reduced VAT, but also to increase the square meters of apartments that will receive the benefit.

Our View

It is expected that amendments to the current regime shall be placed into effect probably at the end of April or early May 2023. As the law stands today it is still possible to proceed with purchases of real estate at the reduced rate of 5% on the purchase or construction of first-time homes.

Furthermore, it is still possible that the final amendments shall have a form which could be different from the ones currently under the proposal. We shall be monitoring the developments and update you accordingly.

For further information and clarifications please contact us via email at or via telephone at +357 22262108