Plenum to discuss reduced VAT on first homes in June

A bill providing for discounted VAT on first homes will be going to the House plenum for a vote in early June, parliamentarians said on Monday – bringing to a close a saga running for several months.

The House finance committee again discussed the government bill at a closed-doors session, after which MPs spoke of a ‘compromise formula’ having been hammered out. They now expect the finance ministry to get back to them on this compromise.

After a session lasting more than three hours, the political parties appeared to have come up with a new ‘sweet spot’ regarding which homes would be eligible for the lower VAT rate of 5 per cent – applied for social housing purposes.

The normal rate is 19 per cent.

According to media reports, the compromise – a synthesis of disparate proposals put forth by MPs – would see the 5 per cent VAT applied on all first homes – houses and apartments – of up to 150 square metres and a value up to €350,000.

For properties between 151 and 200 square metres, and whose value does not exceed €475,000, the lower VAT would apply for the first 150 square metres, with the full rate kicking in for the rest of the surface area.

And for properties exceeding both these parameters, the full 19 per cent VAT would apply from the first square metre.

A finance ministry official promised MPs they would get back to them on this over the coming days.

The legislation has been tinkered with for months, changing several times.

As the text now stands – and before incorporating the compromise formula -the reduced VAT rate on first homes would apply for the first 170 square metres of the buildable area, and for houses up to 220 square metres total and a transaction value up to €385,000.

For apartments, the lower VAT would apply to the first 90 square metres – apartments up to 110 square metres total and a value of up to €220,000.

But under the latest compromise proposal, the distinction between houses and apartments would be scrapped.

Committee chair Christiana Erotokritou said parliamentarians have agreed to take the bill to the plenum on June 8.

The goal, she noted, is to have a legal framework in place that “stops in its tracks” the infringement proceedings launched by the European Commission against Cyprus.

Brussels has initiated the proceedings against Cyprus, but it has yet to issue a reasoned opinion.

The European Commission contends that Cyprus does not properly apply VAT rules for homes purchased or built here.

VAT directive 2017/541 allows member states to apply a lower rate for first homes as part of social policy. But the broad interpretation of the Cyprus provision apparently exceeds the social policy aim stated in the directive, for such an exemption.

The policy had also been flagged when it emerged that recipients of the ‘golden passports’ scheme – who invested in property in exchange for citizenship – had likewise benefited from the lower VAT rate.

The looming threat of EU sanctions was what triggered the drive to amend the legislation.

The applicable law now provides for a VAT rate of 5 per cent for the first 200 square metres of primary residences, without any qualifications. This lower rate is applied irrespective of the income, property or economic conditions of the person or his family residing in the house. Moreover, the total surface area of the home bears no relevance.