Eleftheria Paizanou
Following a crackdown by the Commission last July and infringement proceedings against the Republic, the government is likely to return to the previous tax arrangement that was in force before November 2016, in relation to the reduced tax rate of 5% by the purchase or construction of a main residence.
The Commission, in its warning letter, argues that the use of the reduced real estate tax rate, as is done in Cyprus, does not serve social purposes (foreign investors who bought villas also benefited), which obliges the Cypriot authorities to now consider plan b. Now, the reduced tax rate is applied for social purposes for Cypriot citizens for the first 200 sq.m., regardless of the total area or the total value of the house.
Previously, the law provided that the reduced VAT rate of 5% is imposed for the first 200 sq.m. buildable area of houses with a total area of 275 sq.m.
During yesterday's discussion of AKEL's bill, which provides that no reduced VAT will be offered for high-value homes, the government side once again expressed its disagreement and revealed its next steps. Before the Parliamentary Committee on Finance, the senior VAT official, Nagia Symeonidou, stated that the universality of the measure of the reduced tax rate resulted in the EU questioning its social purpose. As he said, the Republic sent its response to the Commission's warning letter last September, noting that the Ministry of Finance is in consultation with the EU to formulate a new legal framework, which will comply with social policy.
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