& nbsp & nbspEleftheria Paizanou & nbsp; & nbsp;
As of next week, the Ministry of Finance is expected to forward to the Commission the new proposal for the reduced tax rate of 5% when buying or building a main residence. The new proposal of the government will move in three axes and will combine the area and the cost of the property.
The Republic estimates that the new proposal will be a response to the infringement procedure initiated by the past summer the European authorities. The government will propose the imposition of 5% VAT on the first 200 square meters (sq.m.) of the house, meaning that it has a total area of up to 275 sq.m. This regime prevailed from 2011 until 2016, when the Parliament passed a bill of DISY to remove the roof of 275 sq.m.
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In January 2021, the Cypriot authorities effectively misled the Commission, informing it that the specific legal framework (with a ceiling of 275 sq.m.) was applied in the country, while the reality was different. The legal framework, which is still in force today, provides for the imposition of 5% VAT on the first 200 sq.m. of a home, regardless of area.
At the same time, in the new proposal that the government will send to the Commission, the criterion of the value of the house will be included, so that it will be an insurance valve so that the measure for high value real estate will not be applied. In this way, although a property will meet the criterion of sq.m. and area, if it exceeds a specific value to be determined it will not be subject to a reduced tax rate. In addition, the new proposal will propose that the measure not have immediate effect but be given a credit of time of some months, about 3-5 months.
The new proposal will be accompanied by a specific argument that will document the need to return to the status of 2011, ie the return of the criterion of 200 sq.m., with a total area of up to 275 sq.m. The new proposal will also include arguments from the Cypriot authorities on the conditions prevailing in Cyprus, on the area of the main residences but also on the need for a transitional arrangement.
A competent source said that it will be emphasized in the EU that, in case the new measure is implemented immediately, a number of buyers who have already submitted their applications to the Tax Department will be wronged. The Parliament is also holding a waiting position, expecting the Ministry of Finance to forward the revised bill, as they do not agree with the legislation that has already been submitted and discussed in the Parliamentary Committee on Finance. It is reminded that the bill provides for the imposition of reduced VAT on 140 sq.m. of the main residence, with a total area of up to 200 sq.m. That is why the new proposal is being prepared, in order to satisfy both the professional bodies and the parties and on the other hand to reduce the effects on the future property buyers.
16 years ago the social policy
The state's social policy for acquiring a permanent residence began in 2006. Over time, various factors and data changed the law to suit the needs of the time. In particular, under the legislation of 2006, the state provided sponsorship to persons who were proceeding with the construction or purchase of real estate that would be used as the main place of residence and which was charged with the normal tax rate when it was new. At that time, the normal tax rate was 15%. The amount of the sponsorship was calculated based on the square meters of the house (maximum area 130 sq.m.) and multiplying the area by predetermined amounts (depending on whether it was an apartment or a house).
In fact, in the legislation there was a special provision for large families, allowing them to buy real estate with a larger area. The concession of the sponsorship in the case of the house was given only when its total area did not exceed 275 sq.m. and after the submission of some evidence which proved that the applicant used the property as his main and permanent residence. The beneficiary, among other things, would have to provide a copy of the electricity, water and utility bills, as well as certificates for the payment of various Community taxes. This practice was described by some as complicated and created great administrative costs. There was also a long delay in processing applications and paying the sponsorship. & Nbsp;
The changes that followed
Due to the specific reefs, five years later it was decided to change the legal framework. However, the government's social policy regarding access for all to permanent residence on favorable terms continued and the 2006 law was replaced by the inclusion of these transactions at a reduced VAT rate of 5% in VAT legislation. >
In 2011, the differentiated legal framework was implemented, which provided for the imposition of a reduced tax rate on 200 sq.m. of the property, with a total maximum area of 275 sq.m. (this status is claimed by the government). Under this legislation, beneficiaries in order to benefit from the reduced VAT would have to submit evidence, such as electricity, water, telephone, etc., within six months of the beneficiaries acquiring possession of the residence to prove that it is used as the main and permanent residence. In fact, the law explicitly states that the reduced tax rate can be granted only to citizens of the Republic of Cyprus or any member state of the European Union and are permanently established in the Republic. According to the information of the Cypriot authorities to the EU, in 2012 the legislation was amended again, as a result of which the application of the reduced VAT of 5% was extended.
The amendment of the law gives the right to reduced VAT to citizens of countries that come from non-member states, when they buy a building that will be used as their permanent residence in the Republic. The procedure followed for the use of the reduced VAT was as follows: The beneficiary submitted an application to the District Office of the Tax Department, before the first installation in the residence and after presenting all the evidence, the responsible declaration was approved and 5% was imposed for the first 200 sq.m. of the property, meaning that this was up to 275 sq.m.
The hole regime voted in 2016
It is worth noting that in 2016 the law was changed through a draft law of DISY, which was approved by a majority of the Plenary Session of the Parliament, resulting in a reduced VAT on the first 200 sq.m. of the property, regardless of area. Something about which the Cypriot authorities did not inform Brussels, as the legislation was contrary to the European directive, because it did not serve a social purpose, as required by European legislation. In the correspondence sent to the European authorities, the KD assured them that the state implements the social policy in the context of acquiring a residence in the Republic, enhancing the housing opportunities for persons wishing to acquire a main residence in the Republic. In fact, he assured that social policy had nothing to do with the investment program implemented in the country. However, the Audit Office, in the context of an audit, found that the reduced VAT was also benefited by foreign investors, within the framework of the Cypriot investment program.
