Imposition of the reduced VAT rate of 5% on the acquisition and / or construction of a dwelling for use as the main and permanent residence

The application for a reduced rate of 5% applies to contracts concluded after 1 October 2011 relating to the acquisition and / or construction of dwelling for use as the main and permanent residence by the applicant for the next 10 years.

According to a legislative amendment, the restriction that existed on the imposition of VAT at the reduced rate on the first 200 square meters for private property in Cyprus up to 275 square meters is no longer valid.

Based on the amendment, the reduced VAT rate of 5% applies to the first 200 square meters, while the remaining square meters as determined by the building factor will be subject to the standard VAT rate of 19%.

The reduced rate is only imposed upon receipt of a certified copy of the application submitted.

The applicant is required to submit an application on a special form stating that he will use the residence as his main and permanent residence. In addition he is required to attach a series of supporting documents confirming the ownership of the property and proving that the property will be used as his main and permanent residence. The application must be submitted before the delivery of the residence takes place.

As of June 8, 2012, eligible persons include residents of countries that are not Member States of the European Union, provided they will use the residence as their main and permanent residence in the Republic. Evidence of ownership of the property must be submitted upon submission of the application.

The evidence which proves its use as the main and permanent place of residence (copy of telephone bill, water supply, electricity, municipal or community taxes) must be submitted within six months from the date on which the eligible person acquires possession of the residence.

A person who ceases to use the residence as the main and permanent residence before the lapse of 10 years shall, within thirty days of the date that he ceases to use it, notify the Commissioner of Taxation and pay the amount of the difference resulting from applying the reduced and standard rate corresponding to the remaining 10-year period for which he will not use the residence as his main and permanent residence.

In addition, according to the amendment, persons who have already benefited from the option to purchase a principal residence at a reduced rate, may re-exercise this right, whether or not the 10-year period of prohibition of that right has expired. The condition for this to apply, is that in the case that the 10 year period has not elapsed since the use of the residence as the main and permanent place of residence, these persons must pay to the Department of Taxation the difference between the amount of the normal and the reduced VAT rate applicable when the home was delivered or erected.