Cyprus Tax Department to Clamp Down on Rental Properties Purchased as First-Time Residences

The Tax Department is set to fine homeowners who benefited from reduced VAT rates at the time of the purchase of their property while renting out their property through Airbnb and Booking.com

These buyers reported the properties as their primary residences in order to qualify for a reduced 5% VAT rate. According to the law unless the purchaser resides in the property, he/she purchased as a first-time residence, they are not allowed reduced VAT or to rent these properties.

The Tax Authorities claim many are now renting these properties out on a short-term basis, generating significant income.

Under Cypriot law, buyers who benefit from the reduced VAT rate must pay the standard 19% VAT if they have commercial gains from their properties.

Tax Commissioner Sotiris Markides called those who took advantage of the 5% rate to comply with the law and settle any outstanding VAT. Markides said “We urge those who benefited from the 5% VAT rate without entitlement to come forward and settle their dues voluntarily before the inspections begin.”

The Tax Commissioner also stated that “The department is offering flexible repayment options for those who owe additional VAT. Taxpayers can settle their debts in 12 monthly instalments, with the possibility of extending that period at the Tax Commissioner’s discretion.”

During the prior campaign, department officials reported to carry out 3,000 on-site inspections of residential properties, and identified 500 homeowners who had abused the reduced VAT rule. In addition, hundreds of taxpayers voluntarily paid the remaining 14 per cent VAT they owed to the state after being informed of the announcement. During that campaign, the Tax Department collected almost €40 million.

For further information please contact us via email at info@zambartaslegal.com  or via telephone at +357 22262108.