Cyprus Tax Department Audits Properties Purchased with Preferential VAT Rate

  • 3 месяца назад
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In July, the Cyprus Revenue Authority conducted thorough audits on properties that were purchased or constructed with the benefit of a reduced VAT rate. These inspections primarily focused on housing units in the Free Famagusta area, with around one thousand properties being examined.

During these on-the-spot audits, the department identified over 50 significant violations related to property tax calculations, which have collectively cost the Cypriot government approximately four million euros. Since the initiation of these audits in 2022, the tax department has successfully reclaimed around 40 million euros from those found in violation.

The Cyprus Revenue Authority emphasized that numerous Cypriots and foreign property owners are not adhering to legal requirements. Many are renting out their properties—purchased under the short-term rental concessions for personal use—thereby generating substantial profits despite the prohibition. Tax Commissioner Sotiris Markidis urged those who acquired properties with the reduced 5% VAT rate and are using them for commercial purposes to comply with the law. He advised these property owners to voluntarily report to the tax office and settle the remaining 14% VAT. The standard VAT rate in Cyprus currently stands at 19%.

Under Cyprus VAT Laws N.95(I)/2000, certain conditions allow for the application of a reduced VAT rate of 5%. To qualify for this reduced rate, the property must be new and used for the first time, and the purchaser must meet specific criteria, including being over 18 years old, using the property as their primary residence, not owning any other property in Cyprus bought with the reduced VAT rate, and intending to use the property for personal, non-commercial purposes.

Applications for the reduced VAT rate must be submitted to the Cyprus Revenue Authority before taking possession of the property. Required documentation includes proof of ownership and confirmation that the property will be used as a primary residence. Any invoices issued before receiving confirmation from the Revenue Authority must reflect the standard VAT rate of 19%, but adjustments can be made upon approval of the reduced rate. The 5% VAT rate is granted on the condition that the property serves as the main residence in Cyprus for at least 10 years.

Recent legislative changes have refined the conditions for applying the reduced VAT rate to real estate. Key updates include:

The 5% VAT rate applies to the first 130 square meters of a primary residence.
The reduced rate is available for properties valued up to 350,000 euros.
The total area of the property must not exceed 190 square meters, or a value of 475,000 euros. If these thresholds are exceeded, the standard VAT rate of 19% applies to the entire property value.

Source: brief.com.cy| dom.com.cy, Liza Medvetskaya

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