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EU accepts compromise on VAT home discount

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According to reports, Brussels would greenlight a compromise on reduced VAT for first homes, tabled by Cypriot MPs under pressure to beat the 8 June deadline of introducing legislation to harmonise Cyprus law.

Phileleftheros daily report said the European Commission had approved a consensus proposal tabled by the House’s Finance Committee and invited it to take the opinion of the European Commission.

According to the proposed bill by EDEK’s MP Marinos Sizopoulos, a home, whether a flat or a house, of up to 150 sqm with a maximum value of €350,000 will benefit from the reduced VAT rate of 5%.

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. This is for property with a maximum value of €475,000.

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.

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

The House had put together the proposal 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.

Meanwhile, a consensus appears to be forming about the transitional period that will apply to implementing the new regulation based on the application for a planning permit.

In statements after Monday’s session of the House’s Finance Committee, DIKO MP and committee chair Christiana Erotokritou expressed her satisfaction over reports from Brussels.

However, she noted that MPs are concerned over sensitive details of the proposal, which could turn heads in Brussels.

The DIKO MP avoided giving more details.

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

Before the House’s proposal, MPs had been campaigning to extend the size criteria included in the legislation to fit the Cypriot market specs for larger homes, while the ministry pushed for the directive’s adoption before deadlines expired.

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.