Parliament approves reduced VAT rate on first homes

The plenary session of the Cyprus Parliament passed on Thursday almost unanimously a law allowing for the imposition of a reduced VAT rate of 5% on the first 130 sqm of a primary residence, including both houses and apartments. The measure received support from 42 members of parliament, with one abstention.

Specifically, the reduced VAT rate of 5% will apply to the first 130 sqm of a primary residence, for both houses and apartments, up to a value of €350,000, provided that the total transaction value does not exceed €475,000 and the total constructed area does not exceed 190 sqm.

The draft law also includes a provision that allows for the application of the reduced VAT rate 5% on the first 190 sq.m. of a constructed area for individuals with disabilities.

A transitional period is also provided for, during which the proposed regulations will not apply in cases where urban planning permission has 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 in 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 sqm 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 sqm and had the approval of the European Commission, Minister of Finance Makis Keravnos informed the Parliament that he would respect the proposal to be voted on by the Parliament and support it in the competent institutions of the European Union.