In this article, we will discuss both VAT on property and Transfer Fees in Cyprus using simple examples.
When acquiring a new property in Cyprus, it is important to note that it is subject to Value Added Tax (VAT).
However, if the property is a resale (secondary market) or if its planning permit was issued before May 1st, 2004, it is exempt from VAT and instead subjected to a different tax known as the Transfer Fee.
Valued Added Tax on Property (19% and 5%)
The standard VAT on property in Cyprus is 19%.
However, under Cypriot law, a reduced rate of 5% can be applied to real estate purchases if specific conditions are met.
Reduced VAT of 5% – Conditions for Eligibility
- The reduced 5% rate applies to the first €350,000 of the property value, provided the total value does not exceed €475,000. Additionally, it applies to the first 130 square meters of the property’s area, with the total area not exceeding 190 square meters.
- To qualify for the reduced VAT rate, the following criteria must be satisfied:
- The buyer must be an individual (not a legal entity, i.e. company) aged 18 or older.
- The property must be intended as the buyer’s primary residence in Cyprus. Practically, this can be also a holiday home.
- The buyer must not have previously purchased property in Cyprus under the reduced VAT rate.
- The property must be for personal use only, not for profit such as renting (short-term, long-term or Airbnb).
- At the time of applying for the reduced VAT rate, the property must not be occupied or in use.
Examples: - A studio with an area of 55 sq.m. and a price of €125,000 will have a VAT rate of 5%.
- A villa with an area of 300 sq.m., regardless of the price, will have a VAT rate of 19%.
- A villa with value of €600,000, regardless of the area, will have a VAT rate of 19%.
- An apartment with an area of 125 sq.m. and a price of €450,000 will have €350,000 taxed at 5% VAT, and the remaining €100,000 at 19% VAT.
- Let’s consider a more complicated example. Assume a villa with an area of 160 sq.m. and a price of €475,000 (i.e., the maximum eligible for the reduced tax). In this case, the value subject to the reduced tax is calculated as follows: €475,000 x (130/160) x (350/475) = €284,375. The remaining amount of €475,000 – €284,375 is subject to the standard VAT rate of 19%.
The scheme imposes an obligation for a purchaser to maintain ownership and residency in the property for a minimum period of 10 years. If the purchaser intends to sell or rent out the property before the 10 year period elapses, a payment is required to the Tax Department for the VAT difference, in proportion to the remainder of the 10 year period.
For example, if an eligible person buys an apartment for €300,000 + 5% VAT and sells it after 5 years, they must pay the 14% VAT difference for the remaining 7 years: - €300,000 x 5% = €15,000 (initial VAT paid)
- €300,000 x 19% = €57,000 (full VAT rate)
- €57,000 – €15,000 = €42,000 (total savings)
- €42,000 x 5/10 = €21,000 (amount to be reimbursed to the tax authorities if the property is sold after 5 years).
The new criteria will not apply if planning permission has already been issued or if an application for planning permission is filed before 31st October 2023. Your associated costs to purchase off plan will be the VAT (if you own a property, you will need to sell it first if you want to apply for the 5% VAT rate) and lawyers fees which are generally 1% plus VAT.
Transfer Fees :
Properties not subject to VAT must pay Transfer Fees according to the following scales:
Property Value Rate (%)
< €85,000 1.5%
€85,000 – €170,000 2.5%
> €170,000 4%
Transfer Fees do not apply to properties subject to VAT (i.e., new properties); they only apply to the purchase of resale properties.
With the assistance of a licensed estate agent, we can help make your dream of home ownership come true! Please feel free to call or email us anytime, and we would be happy to answer any questions.
