Deadline of June 2026 for the old 5% VAT scheme for property purchases
Deadline of June 2026 for the old 5% VAT scheme for property purchases
Anyone who has benefited from the previous 5% VAT regime in Cyprus when buying or building a main residence will only remain under this system until June 2026,
after which the transitional provisions of the law adopted in 2023 will end.
after which the transitional provisions of the law adopted in 2023 will end.
During this transition period, buyers or builders who had applied for a building permit between June 1 and October 31, 2023 could continue to claim the reduced VAT rate – regardless of when the construction project was actually completed.
This means that the old and the new system will exist in parallel for three years – from 16 June 2023 to 15 June 2026.
The previous 2016 law was considered too generous: it allowed the 5% rate on the first 200 square meters of a property, regardless of the total size or value of the property.
Under pressure from the European Commission, the amended VAT Act Ν.42(I)/2023 was then adopted and published in the Official Journal on 16 June 2023 – with much stricter requirements.
According to the new regulation, the reduced rate of 5% only applies to the first 130 m² of a house, provided that the total value does not exceed €350,000. The total living space may not exceed 190 m² and the total price may not exceed €475,000.
If the value is higher, the normal VAT rate of 19% will be applied to the remaining amount. For people with disabilities, the 5% rate applies up to an area of 190 m², but still with the same value limit.
Finance Minister Makis Keravnos stressed that the transitional regulations only apply to buildings whose building permit has been applied for or granted by 31 October 2023 at the latest. The declaration on the application of the reduced rate must also be submitted to the tax office by 15 June 2026 at the latest.
He also reminded that owners who have taken advantage of the preferential tax rate but do not later use the property as their main residence will have to pay the full difference – regardless of whether they have participated in the "Residency by Investment" program or not. In practice, this additional payment corresponds to an additional burden of 14%.
According to Keravnos, the Ministry of Finance has carried out more than 5,000 checks in the last three years and recovered around €50 million in illegally obtained tax benefits. Many violations were found in coastal regions and student-dominated districts such as Aglandzia or Engomi, where properties were rented out via platforms such as Airbnb.
In the coming months, further clarifications are to follow on how VAT is calculated if the area or value of a property exceeds the permissible limits. A VAT calculator is already available on the tax authority's website, which buyers can use to determine the amount to be paid in advance.
The 2023 law also brought new provisions for repeated applications and family transfers. In the past, the full tax advantage had to be repaid within ten years if you applied again. In the future, the repayment will be calculated on a pro rata basis – according to the remaining years of this period.
If a parent transfers a property to an adult child who themselves meets the requirements for the 5% rate and has their main residence there, the repayment is completely waived.
If the parent continues to live in the house after the transfer, no additional payment is due either – provided that the tax office is informed in writing.
At the same time, controls in tourist and coastal areas will be strengthenedto ensure that the tax relief actually only applies to main residences. The tax authority carries out inspections throughout the year, with a special focus in the summer months, when misappropriation is most common.
In addition, a voluntary disclosure campaign is currently underway, encouraging owners to report themselves and arrange their additional payments if they no longer meet the requirements. In the event of financial difficulties, repayment can be made in up to twelve instalments – in exceptional cases even longer, after approval by the tax commissioner.
Finally, Keravnos confirmed that the EU's infringement proceedings against Cyprus have been officially closed, as the European Commission has recognized the 2023 legislative amendment as EU-compliant. This means that Cyprus is no longer threatened with penalties or additional payments.
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from the 5% rule now - buy real estate Cyprus
🔹 What you should do now:
- If you still want to buy:
👉 Act before June 2026 and look for for objects that fall under the transitional regulation.
(Building permit before 31.10.2023 is crucial!) - If you want to build or plan a new building:
👉 Calculate realistically with the new tax rate – especially for larger properties.
The 5% saving only applies to smaller houses, so adjust the area or price if necessary. - If you have a property that serves as a holiday home or for renting:
👉 Be careful: if you use the 5% rule, the house must remain your main residence.
Otherwise, the tax office will demand the difference (14% additional payment!) back. - If you have children and are thinking about a gift or inheritance:
👉 The new rule is a little more flexible here: transfers to children who live there themselves no longer trigger repayment.
🔹 My conclusion:
- For normal main apartments (up to approx. 350,000 €, 130 m²) everything is in the green zone.
- For larger houses or villas, the system has become more expensive.
- Those who still benefit from the old system should complete it by June 2026 – after that it will be over.
🔹 In short,
the new regulation brings significant disadvantages for buyers of larger or more expensive properties, but little to no change for smaller or average primary residences.
🔹 This was before (until 2023):
- 5% VAT on the first 200 m², no matter how big or expensive the house was.
➡️ This was extremely beneficial, especially for larger villas or high-end properties.
🔹 This now applies (since 2023, finally from June 2026):
- 5% VAT only on the first 130 m², maximum property value: €350,000.
- The property must not be larger than 190 m² in total and must not be more expensive than €475,000.
- Anything above that → 19% VAT.
➡️ Example:
If you buy a house for €600,000 with 230 m², you pay 5% only on the first 130 m², and a full 19% for the rest. This adds up to tens of thousands of euros in additional costs.
If you buy a house for €600,000 with 230 m², you pay 5% only on the first 130 m², and a full 19% for the rest. This adds up to tens of thousands of euros in additional costs.
🔹 Our conclusion:
- For normal main apartments (up to approx. 350,000 €, 130 m²) everything is in the green zone.
- For larger houses or villas, the system has become more expensive.
- Those who still benefit from the old system should complete it by June 2026 – after that it will be over.
Author: Mission-Freedom.eu / MF editorial team
Sources: Ministry of Finance CY / CY-NEWS
