REDUCED 5% VAT ENDs IN DECEMBER 2026

Cyprus's 5% VAT on New Property: Everything You Need to Know in 2026

Before purchasing a newly built property in Cyprus, one of the most important issues to understand is Value Added Tax (VAT). The difference between paying the standard 19% VAT and qualifying for the reduced 5% VAT can amount to tens of thousands of euros in savings. However, recent changes to Cyprus legislation have introduced stricter eligibility criteria that buyers need to understand before signing a purchase agreement.

Buying a home in Cyprus remains one of the most attractive investment and lifestyle opportunities in Europe. Whether you're relocating permanently, retiring, or obtaining Cyprus Permanent Residency, understanding the latest VAT regulations is essential.

What is the Reduced 5% VAT Rate?

The standard VAT on new residential property in Cyprus is 19%. However, the Cyprus government offers a reduced VAT rate of 5% for individuals purchasing or constructing a home that will be used as their primary and permanent residence.

The scheme is designed to support genuine home ownership rather than investment purchases. Properties bought purely for rental income, holiday lets, or resale generally do not qualify.

Who Can Apply?

The reduced VAT is available to:

• Cypriot citizens

• EU citizens

• Non-EU nationals

• Buyers applying for Cyprus Permanent Residency

provided the property will become their main and permanent residence for at least 10 years.

The New Limits

Under the current regulations:

• 5% VAT applies to the first 130 m² of buildable area.

• The reduced rate applies to the first €350,000 of value.

• The property's total value must not exceed €475,000.

• The property's total buildable area must not exceed 190 m² to remain eligible under the standard rules. 

If the property falls within the permitted thresholds but exceeds the qualifying area or value, part of the purchase may be taxed at 19%, depending on the circumstances. Properties exceeding the maximum thresholds may lose eligibility for the reduced rate altogether. Buyers should always obtain professional tax advice before proceeding. 

How Much Could You Save?

The financial benefit can be significant.

For example:

A new apartment priced at €350,000:

• Standard VAT (19%): €66,500

• Reduced VAT (5% on the qualifying portion): substantial savings compared with paying the full 19%.

Depending on the purchase price and qualifying limits, buyers can often save tens of thousands of euros. 

Important Conditions

To keep the reduced VAT benefit:

• The property must remain your primary residence.

• You are expected to use it as your permanent home for 10 years.

• If you sell, rent out, or stop using the property as your main residence before the ten-year period ends, you may need to repay part of the VAT benefit on a proportional basis. 

Transitional Arrangements

Cyprus has also introduced transitional provisions for certain developments that received planning approvals under the previous rules. These provisions remain available only where specific planning permit dates and application requirements are met. Buyers purchasing properties that fall within these transitional arrangements should verify their eligibility with the developer or a qualified tax adviser. 

Why These Changes Were Introduced

The revised legislation was introduced to align Cyprus with European Union requirements and to ensure that the reduced VAT rate benefits genuine owner-occupiers rather than luxury developments or investment properties. The new framework creates clearer limits based on both the property's size and value while maintaining support for individuals purchasing a permanent home.

Planning to Buy in Cyprus?

If you're considering purchasing a new property in Cyprus, it is essential to:

• Confirm whether the property qualifies for the reduced VAT rate.

• Calculate the total VAT payable before signing the reservation agreement.

• Submit the VAT application before taking possession of the property.

• Seek advice from experienced legal professionals to ensure compliance.

With proper planning, the 5% VAT scheme can significantly reduce the overall cost of purchasing your dream home in Cyprus.

Disclaimer: This article is provided for general information only and should not be considered legal or tax advice. VAT legislation may change, and individual circumstances differ. Buyers should always seek advice from a qualified Cyprus lawyer or tax adviser before purchasing property.