The purchase of a newly built property in Cyprus is subject to Value Added Tax at the standard rate of 19%. However, the VAT legislation provides individuals purchasing a brand-new property as their primary and permanent residence with the opportunity to benefit from a significantly reduced VAT rate of 5%.
This reduction can result in a saving of tens of thousands of euros and has, over the years, proven to be one of the most significant financial incentives available to homebuyers in Cyprus. It is important to note that VAT does not apply to resale properties – it is charged exclusively on the first purchase of newly built properties.
This article provides an overview of the current legal framework governing VAT on new-built properties in Cyprus and the latest legislative developments.
The 2026 VAT amendment
By virtue of an amending law published in the Official Gazette of the Republic of Cyprus on 24 April 2026 (Law 109(I)/2026), the transitional provisions of Law 42(I)/2023 have been extended in certain cases until 31 December 2026. Specifically, the amending law provides that the Tax Commissioner may examine applications submitted under the relevant article until 31 December 2026, where the examination was not completed in time due to delays attributable to the planning authorities.
Following the publication of the amendment, the Tax Department issued a clarification setting out the cases to which the extended deadline applies. The extension applies to cases where the planning permit application was submitted or the planning permit was issued by 31 October 2023, and the building permit was issued after 1 January 2025 or will not have been issued by 31 December 2026. Where the building permit has not yet been issued at the time of the application, the application for the reduced VAT rate must be accompanied by the application for the building permit, so that the Tax Commissioner may examine the reasons for the delay in its issuance.
It is important to note that buyers who wish to apply for the reduced VAT rate of 5% under the old rules, in respect of a property for which the planning permit application was submitted or the planning permit was issued by 31 October 2023 and the building permit was issued on or before 31 December 2024, must submit their application to the Tax Commissioner by 15 June 2026, as the original deadline continues to apply to those cases.
The old VAT rules
Prior to June 2023, the reduced VAT rate of 5% applied to the first 200 square metres of the buildable area of a primary residence, with no restrictions on the value or the total size of the property.
This meant that buyers of large, high-value properties could equally benefit from the reduced rate, with 5% applied to the first 200 square metres and the standard rate of 19% applied to any area exceeding that threshold.
The 2023 VAT reform – Law 42(I)/2023
The amending Law 42(I)/2023 was published in the Official Gazette of the Republic of Cyprus on 16 June 2023, introducing stricter eligibility criteria for the reduced VAT rate of 5%.
Under the new framework, the reduced rate of 5% applies to property purchases, subject to the following conditions:
- The first 130 sq. m. of a newly constructed property, provided that the total buildable area does not exceed 190 sq. m., and
- A property value of €350,000, provided that the total transaction value does not exceed the amount of €475,000.
There are exceptions to the above rules for individuals with disabilities.
The initial transitional period
Taking into consideration that many buyers had already entered into commitments under the old rules, the 2023 legislation included a 3-year transitional period. The old rules continued to apply to any project for which a planning permission application had been submitted to the competent authority on or before 31 October 2023, meaning the reduced rate of 5% applied to the first 200 square metres with no value or size restrictions. Under this arrangement, the old and new frameworks operate in parallel from 16 June 2023 until 15 June 2026.
Importance of the 2026 amendment
The significance of this amendment should not be underestimated. The financial difference between the two VAT regimes can be considerable, and for eligible buyers, the more favourable VAT framework can result in a substantially lower VAT liability compared to what would apply under the current rules introduced by Law 42(I)/2023. The extended deadline provides a time-limited opportunity for eligible buyers to still benefit from the more favourable framework that existed prior to the 2023 reform – a framework that, for many years, represented one of the most attractive incentives for homebuyers in Cyprus.
Conclusion
The 2026 amendment is a welcome development for buyers who are considering the purchase of a new-built property in Cyprus and who may still be in a position to benefit from the more favourable VAT framework. Following the clarification issued by the Tax Department, the scope of the amendment is now clearer and its potential financial significance for eligible buyers is undeniable.
Any interested buyer is strongly advised to seek legal advice in order to assess their individual circumstances and determine whether they may benefit from the more favourable VAT framework.
If you are considering purchasing a new-built property in Cyprus and wish to understand how the current rules may affect you, please do not hesitate to contact us.
This article is intended for general information purposes only and does not constitute legal advice. Specialist advice should be sought in respect of your specific circumstances.
Maria Kokoridi
Senior Associate at Philippou Law Firm
