If you are contemplating acquiring a new residence in Cyprus, one of the crucial financial aspects to consider is the Value Added Tax (VAT). Although the standard VAT rate in Cyprus is 19%, a reduced rate of 5% may apply under certain conditions, substantially lowering the overall cost of your investment.
Below is an overview of how the 5% VAT functions and the recent modifications:
It the VAT rate 5% or 19%?
The answer to this question is pretty straightforward.
The 5% VAT is applicable to the first 130 square meters of a primary residence, provided certain conditions are fulfilled. The subsequent square meters, if applicable, are subject to the standard 19% rate. This advantageous tax rate is intended to facilitate homeownership for first-time purchasers and young families.
For instance, If the total covered area of the residence is 190 square meters (maximum allowed for the 5% tax rate), the VAT will be calculated as follows:
The first 130 square meters are taxed at 5% VAT,
The remaining (190 – 130) = 60 square meters are taxed at 19% VAT.
The remaining 60 square meters are subject to 19% VAT
To give a concrete example, let’s assume the price per square meter is €1000 (excluding VAT).
VAT for first 130 sqm:
130 × €1000 × 5% = 130 × 1000 × 0.05 = €6500
VAT for remaining 60 sqm:
60 × €1000 × 19% = €11,400
Total VAT:
€6500 + €11,400 = €17,900
Total price excluding VAT:
190 × €1000 = €190,000
Total price including VAT:
€190,000 + €17,900 = €207,900
In this example, the total VAT amount (€17,900) is equal to 9.42% which is significantly lower than the standard 19%.
Who Qualifies for the 5%?
To qualify for the reduced 5% VAT, you must meet the following criteria:
- The property must be your primary and permanent residence in Cyprus for no less than 10 years.
- You must be an individual (not a corporation).
- The property must be new (first sale) and not a resale.
- You must submit a prompt application to the Tax Department prior to the property’s delivery or occupancy.
- The 5% VAT rate is also accessible for both Cypriots and Non-Cypriot citizens, contingent upon the fulfillment of the aforementioned criteria.
Key Limits and Regulations (as of 2024–2025)
In late 2023, the Cypriot government amended its VAT legislation to align with updated EU directives.
Here are the principal changes currently in force:
- The first 130 square meters of a new primary residence continue to qualify for the reduced 5% VAT.
- Any portion of the property measuring between 131 and 190 m² is taxed at the standard 19% rate.
- If the overall size of the property exceeds 190 m², the entire property is taxed at 19%—not solely the segment above the limit.
- The 5% rate for the primary residence is capped at €350,000 in value.
For properties valued between €350,001 and €475,000, the reduced VAT rate may still apply, but exclusively on the first €350,000 of the property’s value—and once more, only for the portion of the property up to 190 square meters. - The applicant must not have received a Reduced Rate VAT certificate in the past 10 years.
- Individuals with disabilities are entitled to a reduced VAT on property for the first 190 sq. m.
Application Process & Required Documents
To take advantage of the 5% VAT, purchasers must provide online the following documentation to the Cyprus Tax Department:
- Contract of Sale (signed and stamped).
- Copy of Passport / ID
- Signed and scanned declaration from the architect/civil engineer
- Signed and scanned declaration from the Building Contractor
- Proof of payment to the Developer/Building Contractor
- Annual Contractor License for the construction duration of the project
- Marriage certificate (if applicable)
- Planning / Building Permits and their applications
- Signed and scanned declaration from the other applicant(s)
- Certificate of Buildable Area from the relevant authority
- Signed and scanned declaration from the architect/civil engineer
How long does it take?
The procedure generally requires several weeks, and authorization must be secured prior to taking possession of the property.
Conclusion
The 5% VAT scheme renders property acquisition in Cyprus more attainable, particularly for first-time purchasers and families; however, it is vital to comprehend the regulations and submit the application for the reduction timely to avoid incurring the full 19% VAT.
Our real estate agency, can offer guidance based on experience and technical knowhow. Where legal advice is needed, we recommend to consult a lawyer for managing your 5% VAT application. Whether you are a domestic or international buyer, we are here to facilitate a smooth and compliant process.
Disclaimer: “This article is intended to provide general guidance to potential investors and homebuyers during the decision-making process. It is strongly recommended to consult a qualified real estate professional and legal advisor who can offer personalized advice based on your specific circumstances.”
