The proposal set to reduce VAT to five per cent for the first 130 square metres of a first residence is set to head to plenum on Thursday, under pressure of an EU fine over the matter.

After many discussions and revisions, the House finance committee unilaterally agreed to set the maximum area of the property at 130 square metres, rather than 110, noting this reflects the current housing market while meeting EU requirements.

On June 1 this year, the European Commission sent a reasoned opinion to Cyprus citing it does not correctly apply EU VAT rules for houses bought or built in Cyprus.

Cyprus has two months to address the matter. If it does not act within the next two months, the Commission may decide to refer the case to the EU Court of Justice.

Opining on the matter, the finance ministry said all timelines have been exhausted and the risk of Cyprus appearing before the EU court and face a fine “is palpable.”

On May 31, the finance ministry submitted a proposal revising the maximum threshold to have a five per cent VAT tax for the first 110 square metres of property, without making a distinction between apartments and homes, valued at €350,000. The total value should not exceed €475,000 and the total property should not exceed 190 square metres.

A provision was also included that disabled persons should have the reduced VAT for the first 190 square metres.

The bill includes a transitionary period.