MPs near compromise on VAT home discount

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MPs are seeking a compromise on the thorny issue of reduced VAT for first homes, under pressure to beat the 8 June deadline of introducing legislation to harmonise Cyprus’ laws with the EU.

Reports say that MPs are close to resolving the issue following a proposal tabled by social democrats EDEK.

The House has picked up the issue once more as the grace period given by the European Commission is close to expiring, along with a warning against Cyprus over the discount.

If EU-approved legislation is not adopted, Cyprus could be slapped with sanctions by Brussels, as an infringement procedure was launched against the Republic in the summer of 2021.

The EU directive dictates that member states introduce legislation of 5% VAT on homes up to 140 square metres.

According to the proposed bill by EDEK’s MP Marinos Sizopoulos, a home of more than 150 sqm with a maximum value of 350,000 will benefit from the reduced VAT rate.

Homes from 150 sqm to 200 sq. m. will get the standard 19% VAT for every square metre over the limit of up to 200 square metres. The proposal covers both houses and flats.

But a home covering anything over 200 square metres is not eligible for the lower VAT rate of 5% and instead incurs 19% for the whole project.

Currently, this is applicable for homes and flats over 275 square metres.

EDEK’s proposal is the latest of a series of suggestions tabled to resolve the complex issue, as the EU allows states to employ a reduced VAT rate on homes if this serves social policy, such as promoting affordable housing.

Bills have been going and coming to the House, from MPs and the Finance Ministry, for the past two years with no concession reached.

The Finance Ministry’s previous proposal had tried to tie the reduced rate with the property’s value, suggesting that it covers property transactions with a value of up to €350,000 for houses and flats with a total value of €200,000.

Conversely, MPs had been campaigning to extend the size criteria included in the legislation to fit the Cypriot market specs for larger homes.

The House Finance Committee has reportedly greenlighted EDEK’s proposal as Brussels tightens the noose.

According to 2021 data from the Finance Ministry, applications submitted for a reduced VAT rate revealed that 35% involved homes of up to 100 sqm, 17% from 100-140 sqm, while 31% involved properties from 140-200 sqm.

Another 11% of applications involved houses of 200-275 sqm.