New VAT provisions were brought into effect on 8th June 2012 designed to encourage first time buyers in the Republic of Cyprus. Law N73 (I)/2012 amends the VAT Law by offering first time buyers a reduced rate of VAT.
VAT is currently charged on all properties for which the building permission was granted after May 2004. The current full rate of VAT is 17%.
The new law introduces a reduced rate of 5% applicable for a purchase where the following conditions are applicable:
ü A person who is 18 years old or above
ü Acquires a new build property
ü For his/her main permanent residence in the Republic
ü The property must be used only for residential purposes
ü The applicant may not have purchased a reduced rate property in the Republic previously.
Application of the reduced rate is restricted to properties that do not surpass a 275m2 threshold in total area. Furthermore the reduced rate is only applicable to the first 200m2 of the property.
In order to apply for the reduced rate and application must be made to the Ministry of Finance. A declaration will need to be made to confirm that this is the individual’s first purchase in the Republic. Furthermore the application will need to be accompanied by: a copy of the sale contract; plans for the property; a copy of the town planning application; a declaration by architect or civil engineer as to size of property; passport copy or purchaser; and marriage certificate if applicable. Moreover it will be necessary to submit proof that the property is being used as the main permanent residence of the buyer, for instance utility bills.
It should be noted that in order for the reduced rate to be fully effective, the property must remain the main permanent residence of the buyer for a period of ten years. If the property ceases to be the buyers main permanent residence during this period then the VAT department must be informed and full rate will be applicable for the relevant period.
The new law is designed to encourage new buyers in Cyprus by offering a reduced tax rate. If you are buying a property in Cyprus and wish to find out more about the applicable tax provisions then Michael Chambers & Co. LLC’s team of property lawyers can advise on all aspects of the purchase process, including tax provisions. If you wish to speak to one of our property lawyers then please contact us.