Date: 17 April 2025
Buying property in Cyprus comes with many benefits — but understanding VAT (Value Added Tax) is crucial to avoid costly mistakes and maximize your investment. Whether you’re a local buyer or an international investor, this guide breaks down everything you need to know about VAT on residential property, including how to benefit from the reduced 5% rate, when the standard 19% rate applies, and how investors can optimise VAT recovery for short-term rentals.
What Is VAT and When Does It Apply?
VAT is a tax applied to the sale of new residential properties sold by VAT-registered developers.
- New properties: Subject to VAT.
- Resale properties: Exempt from VAT but incur transfer fees.
Understanding whether your property qualifies for VAT — and at which rate — is essential to plan your purchase efficiently.
VAT Rates for Real Estate in Cyprus
- Reduced VAT Rate: 5%
- Applies to buyers purchasing property as their main residence.
- Eligibility criteria are strict — failure to comply results in the standard 19% rate.
- Standard VAT Rate: 19%
- Applies to companies or individuals purchasing property not for permanent residence.
Who Qualifies for the 5% Reduced VAT Rate?
You can qualify for the 5% VAT rate if your property is your primary and permanent residence, subject to:
Eligibility Criteria:
- Buyer must be an individual (not a company)
- Property must be the buyer’s main residence
- 10-year occupancy requirement
- Possession is only allowed after VAT approval
- Application must be submitted via the Tax For All (TFA) portal (mandatory from 27 May 2024)
Important: Exceeding any of these thresholds automatically triggers the 19% VAT rate.
How to Apply for the Reduced 5% VAT Rate
Applications can be submitted as soon as the building permit is lodged — even before it’s officially issued.
Step-by-Step Process:
- Submit your application via the TFA portal
- Provide a formal declaration confirming the property is your main residence
- Wait for official approval before taking possession
- Coordinate with your legal and tax advisors to ensure compliance
Tip: Approval typically takes around one month. Taking possession before approval disqualifies you from the reduced rate.
Examples of VAT Calculations
- Eligible Buyer (Individual)
- Property price: €300,000
- VAT: €300,000 × 5% = €15,000
- Total price including VAT: €315,000
- Ineligible Buyer (Company)
- VAT: €300,000 × 19% = €57,000
- Total price including VAT: €357,000
- Mixed VAT on High-Value Property
- Property price: €450,000
- First €350,000 × 5% = €17,500
- Remaining €100,000 × 19% = €19,000
- Total VAT: €36,500
- Total price including VAT: €486,500
VAT Refunds and Clawback Rules
14% VAT Refund:
If you initially paid 19% VAT but later qualify for the 5% rate, you can reclaim the difference. Refunds may be:
- Credited to your next payment to the developer
- Paid directly if the property is fully purchased
Clawback for Early Sale or Lease:
Selling or renting before the 10-year residency requires partial repayment:
- Formula: Refunded VAT × (10 – years of residence) ÷ 10
- Example: Using the property for 4 years → 60% of refunded VAT must be returned
Voluntary Cancellation:
If you no longer use the property as your main home, you can return the VAT benefit and reuse it for another qualifying property.
VAT on Short-Term Rentals in Cyprus
Investors purchasing property for short-term rentals (Airbnb, serviced apartments) face a different VAT structure.
Key Points:
- Properties used exclusively for VAT-taxable rental may recover the 19% VAT paid on purchase
- Recovery is subject to a 10-year adjustment period
- Changing the property’s use to VAT-exempt (e.g., long-term lease) may require partial repayment
Tip: Proper VAT structuring ensures compliance and maximises recovery opportunities.
Conclusion
Understanding VAT in Cyprus is essential for tax-efficient property investment.
- Individuals buying a main residence benefit from the 5% reduced VAT
- Investors in short-term rentals may recover input VAT if properly structured
At Square One, we guide clients from eligibility assessment to application, coordinating with legal and tax professionals to ensure investments are fully compliant and optimised.
Whether buying your home or building a rental portfolio, understanding VAT is key to success.
