New VAT Legislation on Primary Residences in Cyprus: Key Changes and Implications
October 2025 | Legal Update | Real Estate & Taxation
The Cypriot Parliament has recently passed new legislation introducing significant amendments to the VAT regime applicable to primary residences. The changes, passed with near-unanimous support, aim to align Cyprus’s VAT framework with EU directives and address long-standing concerns raised by the European Commission.
Key Provisions of the New VAT Law
Under the revised law, a reduced VAT rate of 5% will apply to the first 130 square meters of a main residence—either a house or apartment—purchased by individuals, including both Cypriot citizens and foreign nationals. The standard VAT rate of 19% will apply to any area exceeding this limit.
To qualify for the reduced rate, the property must meet the following conditions:
For individuals with disabilities, the reduced 5% VAT rate is extended to the entire 190 square meters, providing additional support to this category of buyers.
October 2025 | Legal Update | Real Estate & Taxation
The Cypriot Parliament has recently passed new legislation introducing significant amendments to the VAT regime applicable to primary residences. The changes, passed with near-unanimous support, aim to align Cyprus’s VAT framework with EU directives and address long-standing concerns raised by the European Commission.
Key Provisions of the New VAT Law
Under the revised law, a reduced VAT rate of 5% will apply to the first 130 square meters of a main residence—either a house or apartment—purchased by individuals, including both Cypriot citizens and foreign nationals. The standard VAT rate of 19% will apply to any area exceeding this limit.
To qualify for the reduced rate, the property must meet the following conditions:
For individuals with disabilities, the reduced 5% VAT rate is extended to the entire 190 square meters, providing additional support to this category of buyers.
Transitional Arrangements and Scope
Importantly, the law does not apply retroactively. Properties for which a building permit has already been issued will remain subject to the previous VAT rules. Furthermore, a four-month transitional period has been introduced, during which developers can still apply for building permits under the old regime.
Background and EU Compliance
The changes follow a long period of debate that began in early 2022. Previously, the reduced 5% VAT rate applied to the first 200 square meters of a primary residence. This generous threshold was often utilized by investors, including those participating in Cyprus’s now-suspended citizenship-by-investment program, to reduce their tax liability on high-value properties.
However, the European Commission expressed strong concerns over this policy, arguing that the reduced VAT rate should benefit individuals with genuine housing needs, rather than investors acquiring luxury real estate. In late 2022, Brussels issued a formal warning and threatened a €300 million fine unless Cyprus amended its legislation within two months.
Despite these warnings, political negotiations delayed the finalisation of the bill until mid-2023. The primary sticking point during the legislative process was the exact area of the residence that should qualify for the reduced rate—proposals varied between 90, 110, and 130 square meters before finally settling on the latter.
What This Means for Buyers and Developers
These reforms mark a significant shift in Cyprus’s housing and taxation policy. Prospective homeowners—especially first-time buyers—must now factor in the new VAT structure when budgeting for a property. Meanwhile, developers will need to act quickly during the transition period if they wish to benefit from the prior regime for existing projects.
Our firm is closely monitoring the implementation of the new VAT framework and is available to assist clients—both individuals and real estate developers—with navigating the updated legal landscape. For more information or personalised legal advice, please contact our Real Estate and Taxation team.
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