VAT on Cyprus Property

Value Added Tax is a tax charged on goods and services which are provided by a VAT registered business and is chargeable when such a business sells its products or services to another business or to a private individual.

The rate of VAT in Cyprus is 15% and VAT can apply to the sale of property by developers in Cyprus. Where VAT does apply, a refund may be obtained under certain circumstances and may be applied for from the Ministry of Finance.

When Does VAT Apply to Property in Cyprus?

VAT on property in Cyprus will apply in respect of new build property only. In order for the tax to apply, the town planning permit for the property must have been applied for after 1 May 2004. Any new build property where the town planning permit was applied for before this date will not attract VAT.

Sales of land are exempt from VAT although it is anticipated that this will be changed at some stage in the future. Sales of used property (ie resales) will not attract VAT.

What About the VAT Refund?

As an encouragement for first time buyers, in the case of a purchaser’s first private residence then a refund of maximum 10% of the VAT paid on the property may be claimed back from the local authority. It should be noted that the full amount needs to be paid first and then the refund is applied for at a later stage, however the process effectively allows for a lower rate of 5% to apply to this category of buyers.

The actual value of refund is made according to a calculation which takes into account the area of the property, the type of property and the cost of build per square meter.

The refund does not apply to properties which have a covered area of more than 250 m2 as this is considered a luxury property and the tax will apply.

In order to qualify for the refund the following criteria must be satisfied:

  • The property must be your home for at least ten years (if it is not then you will be liable to refund the payment proportionally according to the amount of time spent in the property);
  • The property must be the main residence of the applicant, who should not own another second residence on the island;
  • The applicant must be 18 years or older and must be an EU Citizen;
  • The applicant must be permanently resident in Cyprus (ie live in Cyprus for no less than 186 days per year) and utility bills should be presented with the application in order to prove this.

Applying for a VAT Refund

An application will be made on the Ministry of Finance form and will need to be accompanied by:

  • Contract of Sale;
  • Utility bills proving permanent residency;
  • Building permit.

Selling your Property

You only pay VAT when you purchase property, and there is no VAT charged when you sell. Special consideration should be given to resale properties, which are sold under a cancellation and resale agreement and before the purchaser has even used the property. In such cases, the purchase will attract VAT and the developer will be liable to account for such. In the event that the property has been used then it will be considered to be a resale and VAT will not be due.

Conclusion

At 15%, VAT can make a considerable difference to the affordability of a property and one must take care to check whether purchase prices quoted by developers and agents include VAT and whether such is chargeable. In the case where VAT is chargeable, there is special provision for a refund in the case of first time buyers and legal advice should be sought as to whether this provision is applicable and an application can be made.

About the author

Louise Zambartis Cyprus Property Lawyer

Louise holds an LLB (Hons) in Law from Birmingham University and was admitted as a Solicitor of England and Wales in 1991. She was granted a Cyprus Bar License in 2004 and established the Law Offices of Louise Zambartas when she relocated permanently to Cyprus.

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