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Reduced VAT Rate (5%) on Acquisition / Construction of Primary Residence – Clarification of Transitional Provisions
Following the recent announcement issued by the Cyprus Tax Department on 4 May 2026, and pursuant to the amending Law N.109(I)/2026, we set out below a clarification of the transitional provisions governing the application of the reduced VAT rate of 5% on the acquisition or construction of a primary residence.
1. Extension of Examination Period
The Tax Commissioner is authorised to examine pending Responsible Declarations submitted under Article 63 of the VAT Law until 31 December 2026, in cases where delays in the examination process arose due to planning authority procedures.
This measure constitutes an administrative extension and does not expand the substantive scope of the scheme.
2. Applicability of Transitional Provisions (Article 63)
The transitional regime continues to apply exclusively to cases where:
- a planning permit has been issued, or
- an application for a planning permit has been duly submitted,
on or before 31 October 2023.
This date remains the determinative eligibility threshold for access to the transitional provisions.
3. Acceptance of Responsible Declarations
The Tax Department will accept Responsible Declarations for the application of the reduced VAT rate in cases where:
the planning permit (or application thereof) meets the above 31 October 2023 criterion, and
the building permit:
- has been issued after 1 January 2025, or
- will not be issued by 31 December 2026.
This clarification addresses cases where delays have arisen in the issuance of building permits subsequent to the planning stage.
4. Specific Filing Deadline – 15 June 2026
In cases where:
- the planning permit application was submitted on or before 31 October 2023, and
- the building permit was issued on or before 31 December 2024,
the relevant Responsible Declaration must be submitted no later than 15 June 2026.
Failure to comply with this deadline may result in the loss of entitlement to the reduced VAT rate on the qualifying portion of the property.
5. Scope of the Reduced VAT Rate
Where the above conditions are satisfied, the reduced VAT rate of 5% applies to:
- the first 200 square metres of the buildable area of the residence,
- with any excess area subject to VAT at the standard rate.
6. Submission Process
Responsible Declarations must be submitted electronically only via the Tax For All (TFA) system, in duly completed form.
7. Observations
The above legislative amendment and administrative guidance aim to safeguard taxpayers whose applications fall within the transitional framework but have been affected by delays in planning and permitting procedures.
It is, however, essential that affected persons carefully monitor and comply with the applicable statutory deadlines, particularly the 15 June 2026 filing deadline, where relevant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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