Even for local Cypriots living in the Greek part of the island, the issue of VAT on real estate transactions is a confusing one. That is why we felt the need to simplify the issue and bring order to the field, as it is very important to understand the derived costs that investors are required to pay later on. VAT is undoubtedly a significant component of the total investment costs, reaching 19% in Greek Cyprus, but if we understand the law, we can even get a full refund on the VAT we paid.
For what type of real estate transactions in Cyprus is VAT required?
Since Cyprus joined the European Union in May 2004, VAT is required on the purchase of new properties from developers.
For the purchase of second-hand properties, VAT is not required, but transfer tax is payable. We will discuss this later.
When can we receive a refund or exemption from the obligation to pay VAT when purchasing a new property from a developer that is subject to payment?
-Application for a 5% reduction in VAT under the following conditions:
The property is for residential purposes and is the first property purchased on the island (there are strict conditions and checks for this).
The property must be no larger than 130 square meters, and the land area must not exceed 190 square meters.
The property must be worth no more than 475,000 euros, with the first 350,000 euros eligible for the refund.
-Application for a full refund of VAT for short-term rentals (this is a little-known option, even among locals)
It is not necessary to open a company, but the income must be declared as business income (similar to a registered trader in Israel).
The property must be rented out for short-term rentals (for example, Airbnb) for 10 years or until the full VAT refund is received from the short-term tenants (whichever comes first).
Which components of taxation will apply to a "second-hand" transaction that does not apply to the VAT component?
So we bought a second-hand apartment and did not pay VAT, but there are other taxes - transfer tax and stamp duty.
Transfer tax
Transfer tax, or transfer fee in direct translation, is a progressive tax in Cyprus.
The rates are - 3% (up to 85,000 euros), 5% (between 85,000 - 170,000 euros), 8% (over 170,000 euros) of the property value.
In the case where a transaction is not subject to VAT (such as in the case of buying a "second-hand" property), Cypriot law grants a 50% exemption on the amount of transfer tax. This applies to all types of transactions and is actually a permanent exemption created to encourage investors.
In the case where a property is registered in the name of two people, even if they are spouses, transfer tax will apply to each spouse as if they bought a property for half the amount. In addition, a discount will apply that is added to the 50% exemption (varies depending on the value of the transaction).
Stamp duty is a minor tax that is graduated according to the following rates:
Exemption for the first 5,000 euros of the property value
5,000-170,000 euros - 0.15% of the property value
Over 170,000 euros - 0.20% of the property value
For your convenience, we have attached a link to an online calculator for calculating transfer tax and stamp duty in Cyprus.
We hope that we have been able to explain the VAT, transfer tax, and stamp duty issues in the purchase of property in Cyprus in a more understandable way.
If you have any further questions, please do not hesitate to contact us.
Ofek Zamarot from Zamarot Real Estate Group
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