A proposal submitted to the House of Representatives on Thursday seeks a one-year extension to the transitional period during which a reduced 5% VAT rate applies to the purchase or construction of a property intended as a primary residence, instead of the standard 19% rate.
The bill, introduced by Stavros Papadouris, President of the Movement of Ecologists, aims to amend the VAT Law so that the required declaration for securing the reduced VAT rate can be submitted within four years from the law’s commencement date, rather than the current three-year window.
The existing three-year transitional period, which began in June 2023, remains in effect until this coming June. However, significant delays have been reported in the issuance of planning and building permits by the newly established District Local Government Organisation (DLGOs), now responsible for these approvals.
Speaking to StockWatch, Mr Papadouris explained that numerous applicants who submitted their permit requests before October 2023 are still waiting for approval due to DLGO backlogs. As a result, the transitional VAT relief, which intended to ease the financial burden for homebuyers and developers risks, becoming ineffective for many.
He stressed that applicants should not be penalised for administrative delays, describing the situation as unfair for those unable to obtain their permits in time.
Since 1 July 2024, responsibility for building permits transferred from municipalities and district administrations to the newly formed DLGOs. Most of these bodies have so far struggled to cope with market demand. During a recent meeting between the presidents of the five DLGOs and the Cyprus Builders’ Federation (OSEOK), the urgent need to resolve ongoing licensing delays was highlighted once more.
Possible need for EU approval
Asked whether extending the timeframe might require approval from the European Commission, given that infringement proceedings had been instigated against Cyprus on the issue, while the Commission’s consent had been granted for initial three-year period, Mr Papadouris said the matter would be examined during the bill’s review.
He emphasised that the primary aim of the proposal is to ensure the transitional period can serve its intended purpose, noting that affected individuals bear no responsibility for the delays caused by the DLGOs.
Background: the 2023 property VAT framework
Under the legislation introduced in 2023, once the transitional period ends, a 5% VAT rate applies only to the first 130 sqm. of a residence valued up to €350,000. Houses and apartments measuring between 131 and 190 sqm. and valued up to €475,000 are subject to 19% VAT on the additional square metres.
In other words, 5% VAT applies to the first 130 sqm. (up to €350,000), while the remaining 60 sqm. up to the 190 sqm. cap are taxed at 19%. Properties exceeding 190 sqm. or €475,000 are subject to the full 19% VAT from the first square metre.
The transitional period applies to those who filed planning applications between early June and 31 October 2023, regardless of when construction is completed. Reports indicate that more than 10,000 applications have been submitted to date.
