Bill for reduced VAT on first homes to go to plenum June 8

Parliamentarians on Monday sounded upbeat that legislation regulating which homes would be eligible for reduced VAT will go to the House plenum for a vote on June 8.

The ‘sweet spot’ – a synthesis of disparate proposals put forth by MPs – would see the discounted 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 19 per cent rate kicking in for the rest of the surface area.

For properties exceeding these parameters, the normal 19 per cent VAT would apply from the first square metre.

Discounted VAT on first homes is provided for social housing purposes.

From MPs’ comments on Monday, it appears the compromise proposal – tweaking a government bill – has been accepted by the finance ministry, which gets feedback from the European Commission on the matter.

Christiana Erotokritou, chair of the House finance committee, said the issue was finally headed to a close.

The tweaks made to the government legislation would expand the number of persons eligible for the discounted VAT.

“We remain committed to the June 8 timeline, as we all recognise this matter must come to an end, so that we can have market certainty, and everyone can know what are the new parameters which will allow the middle class and lower-income groups to acquire a property with the lower 5 per cent VAT.”

Another matter – relating to a transitional phase to allow as many people as possible to benefit – likewise appears to have been ironed out.

According to Dipa MP Alekos Tryfonides, under this arrangement eligibility for the discounted VAT would extend to town planning applications filed four months after the passage of the law – and on condition that the property in question is built within three years.

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.

Brussels has initiated infringement proceedings against Cyprus, although it has yet to issue a reasoned opinion.

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.