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VAT rates for buyers of new residential properties

posted 8 years ago

The acquisition
of new-build residential properties and the construction of private residences
are subject to Value Added Tax (VAT) as per the provisions of the
Value Added Tax Law (95(I)/2000). In cases where a buyer
purchases a residential property with the purpose to use the property as the
primary and permanent residence in the Cyprus Republic, then the property can
be subject to a reduced VAT rate following the submission of a relevant
application. The reduced VAT rate is applicable to European Union citizens as
well as non-EU citizens (as per the
Value
Added Tax (Amendment) Law of 2012
).

Immovable
properties are exempted from VAT in cases where the application for the
issuance of a Planning Permit was duly submitted before 01/05/2004, when Cyprus
became a full EU member.

Standard VAT rate – 19%

As of the 13th
of January 2014 and based on the provisions of the Article 17 of the VAT Law the
standard VAT rate is 19%.

Reduced VAT rate – 5%

As per the
provisions of the Article 18 of the VAT Law (Fifth Annex, Table C), a reduced
VAT rate of 5% is applicable for the acquisition or construction of residential
properties in cases where:

       
The property is or will be used
as the primary and permanent residence of the buyer or the owner (the
applicant) in Cyprus;

       
The acquisition or the
construction of the property is or will be completed before the first occupancy
into the property or the first exploitation of the property;

       
The applicant has not acquired
any other residence in Cyprus with the reduced VAT rate;

       
The application for the
issuance of a Planning Permit was duly submitted after 01/05/2004 to the
Authorities;

       
The applicant is an adult
person (18 years of age and above); as such legal entities are excluded.

The reduced VAT rate
of 5% applies on the first 200 square meters of the property as per the
architectural plans submitted to the relevant Authorities (building coefficient),
whereas for the remaining square meters the standard VAT rate of 19% is
imposed. In cases of large families (minimum of four children) the reduced VAT rate
of 5% is applicable for the first 200 square meters increased by 15 square
meters per each additional child over three children.

The Value Added Tax (Amendment) Law of 2016,
which was recently passed by the Cyprus Parliament, ended the restriction of the
imposition of the reduced rate of VAT to private residences up to 275 square
meters.

It is essential
to underline that in cases where the reduced VAT rate is granted, the residential
property must be used as the applicant’s primary residence for a period of 10
years. A person who has been granted with the reduced VAT rate, but ceases to
use the property as his or her residence before the lapse of the 10-year period
must notify the Commissioner of Taxation within 30 days of ceasing to use the property
as a residence. The person must pay the difference in the VAT between the
standard and reduced rates, attributable to the remaining period of 10 years.

Based on the recent
VAT Amendment Law of 2016, buyers or owners who have been granted with the
reduced VAT rate for the acquisition of one residence, can acquire another residential
property and re-apply for the reduced VAT rate, even if the 10-year period has
not lapsed, so long as the applicant:

       
Ceases to use the property as
his or her residence before the lapse of the 10-year period, and

       
Notifies the Commissioner of
Taxation accordingly, and

       
Pays back to the Tax Department
the difference in the VAT between the standard and reduced rates which were applicable
at the time of the acquisition or construction of the first residence.

In all other
cases, the applicant has the right to be granted with the reduced VAT for
another private residence after the lapse of 10 years.

Reduced VAT rate application

The reduced rate
is imposed after obtaining a certified confirmation from the Commissioner of
Taxation following the submission of a relevant application, along with
supporting documentation. The application can be submitted by the buyer in
person, or through the buyer’s legal representative. In their application
eligible buyers should express their declaration that the property will be used
as their primary and permanent residence in Cyprus and that they have not
obtained any other property in Cyprus with the reduced VAT rate. In cases where
the buyer is married, the spouse should also declare that has not acquired any
other residence with the reduced VAT, as the reduced rate is granted to one
property per married couple.

If the property
is under construction (off-plan) the reduced VAT rate application can be submitted
at any time during the construction of the property. In cases of purchasing new-build
properties the application must be submitted before the delivery of the
property to the buyer.

As per the
provisions of the Article 46 (subsection 16) of the VAT Law, applicants who
make a false statement to benefit from the reduced rate are obliged by law to
pay the difference in the VAT between the standard and reduced rates. Moreover,
the legislation provides that such persons are guilty of a criminal offence
and, upon conviction, are liable to a fine, not exceeding twice the amount of
the VAT due, or imprisonment up to 3 years, or may be subject to both
sentences.

The content of
this article intends to provide a general guide to the subject matter.
Specialist advice should be sought on each particular case. For any further
information, please contact Ms. Eleni Drakou by email at: e.drakou@kyprianou.com.cy or by
phone at: +357-25-363685.

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