The European Commission puts Cyprus's two feet in one shoe with regard to its compliance with EU VAT rules for residences and specifically the reduced rate of 5% for a first residence.
Specifically, the European Commission decided today to send a reasoned opinion to Cyprus because it does not correctly apply the EU VAT rules for houses purchased or manufactured in Cyprus.
Cyprus allows the application of a reduced VAT rate of 5% for the first 200 m2 of houses used as the main and permanent residence by the beneficiary, without other restrictions.
Indeed , the VAT Directive (Council Directive 2006/112/EC) allows Member States to apply a reduced rate of VAT to housing as part of a social policy.
However, the wide scope of the Cypriot legislation and the lack of restrictions in it show that the measure exceeds this objective.
In particular, the reduced rate is applied regardless of income, the assets and the financial situation of the beneficiary, the family members who will live in the residence and the maximum total area of the residence. Consequently, the Commission considers that Cyprus has breached its obligations under the VAT Directive.
Today's reasoned opinion is a follow-up to the warning letter sent by the Commission in Cyprus in July 2021. Cyprus now has two months to address the deficiencies identified in that reasoned opinion.
If Cyprus does not take action within of the next two months, the Commission may decide to refer the case to the Court of Justice of the European Union.
source: Reporter
