Compromising the VAT invoice on new housing

The government has re-tabled a bill for a reduction in VAT on first residences, aiming to strike a balance between MPs’ concerns and the European Commission, which has launched infringement proceedings against Cyprus over the discount .

A European Union directive to reduce the size of homes with less than 5% VAT has caused an outcry in the Chamber and among property stakeholders, saying it will endanger the recovery of the housing sector. construction and economy.

Cyprus has also come under scrutiny after a report by the island’s audit office claimed current legislation had been abused by foreign investors eyeing golden passports, costing the state millions of dollars. euros of unpaid taxes.

Based on the findings, the Republic suffered revenue losses of €200 million from naturalized Cypriot foreign investors.

As state auditors have reported, foreign investors considering a Cypriot passport were taking advantage of current legislation when buying luxury apartments in tower blocks, getting away with the 5€ VAT clause. %.

In a warning letter, the European Commission points out that third-country nationals also benefit from what is considered a social contingency measure.

The House is now ready to reopen the case, considering the proposal, which has not yet been made public, but reports say the government is on the sidelines.

According to a recent EU directive, member states must introduce 5% VAT legislation on homes up to 140 square meters.

In Cyprus, the reduced rate of VAT at 5% applies for houses up to 200 m² of building area.

The cabinet has already approved the directive and needs parliamentary approval.

According to reports, a house over 170m² under the proposed bill will receive the standard 19% VAT for each square meter over the limit.

But a house larger than 220 square meters would not qualify for the lower 5% VAT rate and instead incur 19% for the entire project.

Currently, this applies to homes over 275 square meters.

For apartments, only the first 90 square meters of an apartment with a maximum area of ​​110 square meters will be taxed at 5% VAT.

The Court of Auditors sent a note to Parliament with its position on the revised bill, expressing its concerns about its compliance with the European obligations of the Republic.

Auditors expressed doubts whether introducing a cap on buildable area and total property value, without linking it to buyers’ income and other social criteria, would satisfy the EU.

He is also concerned about the government’s differentiation between houses and apartments.

Furthermore, the Court of Auditors underlined that under no circumstances should the reduced VAT measure be applied to real estate for investment purposes.

The Technical Chamber of Cyprus (ETEK), advising the government, has proposed that reduced VAT be applicable to houses worth up to €450,000 and apartments worth up to €275,000.

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