Do I have to pay VAT?
Property News Article by Demetris Demetriades – Barrister at Law Gray’s Inn & Head of Conveyancing and Immigration Department at Andreas Demetriades and Co LLC
Bearing in mind that VAT can be as high as 19% and is added on top of the purchase price, this is something that any home buyer should look into before buying their dream house.
VAT is chargeable on the first sale of new buildings or parts of buildings, and the land on which they stand if the application for a planning permit was submitted after 1 May 2004. No VAT is charged on any subsequent sales you make. Thus, if you are buying a resale property, you wouldn’t be liable for payment of VAT, although you would still be liable to pay Transfer Fees.
How are Transfer Fees calculated?
Transfer fees are payable by the purchaser at the Department of Lands and Surveys on the date of transfer of the Title Deed into your name. Although the fee is usually calculated on the purchase price, DLS may impose higher transfer fees if the valuation department decides that the market value of the property at the time of purchase exceeds the purchase price. The applicable rates are 1.5% on the first €85,000, 2.5% on the next €85,000 and 4% on any excess above €170,000.
So, is the VAT Rate 19% or 5%?
Purchase of new properties is subject to the standard rate of 19%. However, a reduced VAT rate of 5% applies under the following conditions:
- The property must be used as the primary and permanent residence of the applicant.
- The property cannot be used for any other purposes for a period of ten years (i.e. cannot be rented out), and
- The applicant must have not acquired any other residence in Cyprus with a reduced VAT rate in the previous 10 years.
Is the reduced VAT Rate of 5% payable on the whole purchase price?
The reduced VAT rate of 5% applies on the first 200sq m of the property as per the architectural plans. For any square metres in excess of 200sq m, the standard VAT rate of 19% applies. Bear in mind however, that certain areas of the property are deducted from the calculation of the 200sq m area.
What if I sell the property on which I paid 5% VAT? Can I re-apply for a reduced rate on my next new property?
Yes, you can, irrespective of whether the 10 year prohibition period for using the initial residence has lapsed or not. However, if the 10 year period of using the first residence as the main and permanent place of residence has not lapsed, you must return to the Tax Department the difference in the VAT between the standard and reduced VAT rates applicable at the time you purchased the first property.
For more guidance on buying a house in Cyprus, please call our offices on +357 26 811 668 or email firstname.lastname@example.org. Having legal representation in place is your no.1 step to a hassle-free purchase.