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Jul24
Extension to the transitional provisions for the reduced VAT rate of 5% on primary residences in Cyprus until 31 December 2026
The Cyprus Tax Department has made known that the period during which eligible individuals can utilize the simplified VAT regime for acquiring or constructing a principal, permanent residence is being prolonged.
This action gives a reprieve for those people who have delays in planning and construction authorization processes. Therefore, these people are being protected against losing out due to administrative delays beyond their control.
What used to be a deadline of 15 June 2026 has been further postponed to 31 December 2026, and this means that individuals can continue enjoying the more advantageous VAT level granted under the previous rules.
Why the Extension Matters 
The measure will assist those individuals who have encountered delays in the processing of applications by Planning Authorities. Without this measure, all the people who had started their projects while the previous legislative framework was operative may have lost the opportunity to benefit from the lower VAT rate only due to bureaucratic delays.
Conditions for Eligibility Under the Extended Transitional Rules
Submissions under a previous VAT regime can now be made until 31 December 2026 as long as the applicant meets a set of conditions.
Applicants must satisfy these conditions:
- The planning permission application was submitted by 31 October 2023 at the latest.
- The building permit was either issued on or after 1 January 2025 or has not been issued by 31 December 2026.
- The application is completed in full and filed electronically via the Tax For All (TFA) system.
Upon meeting all the requirements above, the applicant will have the legal right to continue using the old VAT regime if the relevant authorities caused the slowdown of the administrative process.
Comparison of the Old and New VAT Regimes
This extension of the provisions relates only to transitional regulations of the previous VAT system. Property owners must understand the difference between these tax regimes before any new investment is made.
| Feature | Previous VAT Regime | Current VAT Regime |
| Reduced VAT rate | 5% | 5% |
| Residential area eligible for reduced VAT | First 200 m² | First 130 m² |
| Property value limit | No equivalent cap | €350,000 |
| Maximum buildable area | Not subject to current limits | 190 m² |
| Maximum total property cost | Not subject to current limits | €475,000 |
| Special provisions | Standard eligibility provisions | Persons with disabilities and large families get extra provisions |
By looking at the table, it is apparent that the previous regime generally offers broader eligibility for larger properties; thus, a transitional extension of the old one is very welcome news in general and highly valuable to those who qualify.
Implications for Property Owners in Practice
One who wishes to buy or build a property to stay should evaluate carefully their eligibility in accordance with the extended conditions of a transitional arrangement. Those who meet the requirements for their residential projects may get a much more favorable VAT regime compared to the present one.
Prospective applicants should also prepare supporting materials in a timely manner and submit the application through the TFA system before the new deadline is reached. Since the VAT eligibility criteria and related documents are quite complex, legal and tax consulting will be very helpful in avoiding mistakes and saving time.
Conclusion
Extension of the transitional arrangement until 31 December 2026 is a relief for persons who have experienced delays related to planning and permits for their residential projects and will be of help to them in the long run. The fact that the Cyprus Tax Authority will continue to offer the previous VAT regime to certain applicants enables them to benefit from the reduced 5% VAT on the first 200 square metres of their main residence as long as they satisfy all prescribed prerequisites and requirements.
Homebuyers and developers actively engaged in residential work should therefore take the earliest opportunity to determine their eligibility and also be able to file their applications using the Tax Free Allowance platform in order to enjoy this opportunity.
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This article is for informational purposes only. It does not constitute legal, tax, or financial advice and should not be treated as a substitute for professional consultation. Readers should seek guidance from our qualified professionals before taking action.
What is the new application deadline?
The scope of eligible applications under the previous VAT system is extended until 31 December 2026.
What are the main eligibility criteria?
The application shall have been submitted with the Planning Permission application before 31st October 2023; and the building permit shall have been issued after 1st January 2025 or shall not be issued before 31st December 2026.
How does the previous VAT regime differ from the current one?
Before this, the 5% VAT rate was levied on the first 200 m² of buildable space. In the present regime, the lower rate is usually only levied on the first 130 m², depending on the value of the property, the build size and the overall costs of construction.
Does the current VAT regime include any exceptions?
Yes. The current system offers certain concessions and relaxations, available to people with disabilities and to large families, within the limits of the relevant law.