Parliament approves reduced VAT rate for first homes

Cyprus’ parliament has approved a law allowing for a reduced VAT rate of 5% on the first 130 sq.m. of primary residences worth up to €350,000, applicable to both houses and apartments.

The draft was voted through with 42 MPs in favour and one abstention.

Under the new law, the reduced VAT rate is granted on the condition that the total transaction value does not exceed €475,000 and the total constructed area does not exceed 190 sq.m.

There is also a provision for a 5% VAT rate on the first 190 sq.m. of a constructed area for individuals with disabilities.

There will be a transitional period, during which the proposed regulations will not apply in cases where urban planning permission has already been obtained or an application for such permission has been submitted within four months from the effective date of the law.

During a lengthy debate at the plenary session, despite the consensus surrounding the passage of this particular law, there were disagreements among parties regarding the responsibilities that led to the amendment of the legislation that previously allowed for a reduced VAT rate of 5% on the first 200 sq.m. of a residence.

The European Commission has initiated infringement proceedings against the Republic of Cyprus regarding this matter, saying that the specific measure was not implemented as a social policy measure.

Despite the different proposal put forward by the Ministry of Finance, which provided for a reduced VAT rate for the first 110 sq.m. and had the approval of the European Commission, Finance Minister Makis Keravnos informed MPs that he would respect the proposal to be voted on by the Parliament and support it in the competent institutions of the EU.

(Source: CNA)