EU green lights reduced VAT on first homes – minister

The European Commission has given the nod to the levying of the reduced 5 per cent VAT on first homes in Cyprus, the finance minister revealed on Monday.

Makis Keravnos made the remarks to journalists coming out of a courtesy meeting with the new leadership of the Chamber of Commerce and Industry.

He said the European Commission’s Directorate-General for Competition agreed to the reduced VAT scheme thanks to the “tireless efforts” of the finance ministry.

According to the minister, Brussels has taken on board the reduced VAT scheme exactly as it was passed by parliament last June.

The discounted VAT (the full rate is 19 per cent) applies to the first 130 square metres of a first home – for single dwellings and apartments alike – and up to a value of €350,000, provided that the total value of the transaction does not exceed €475,000 and that the total buildable area does not surpass 190 square metres.

Another clause provides that, for persons with a disability, the discounted VAT will apply to the first 190 square metres of the buildable area.

The law also provided for a transitional period, so that the new rules do not apply in cases where a town planning permit has been issued or where an application for a town planning permit has been filed within four months of the entry into force of the law.

On June 1 last year the European Commission had sent a reasoned opinion to Nicosia saying the latter did not correctly apply EU VAT rules for houses bought or built in Cyprus.

Cyprus had two months to address the matter. Unless it acted within the next two months, the commission could have decided to refer the case to the European Court of Justice.

In the worst-case scenario, Brussels could have imposed a fine for non-compliance.

It’s understood the infringement proceedings were first launched in the summer of 2021.

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

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