Effective as from the 1st of November 2023, a significant shift in Cyprus tax legislation, marked by the introduction of Law 42(I)/2023, has come into play. The new law brings about amendments to VAT regulations, primarily affecting property transfers.
Under this latest legislation, a 5% Value Added Tax (VAT) is now imposed on the initial 130 square meters (sq.m.) of a house or apartment with a value of up to €350,000. However, for properties ranging from 131 sq.m. to 190 sq.m. and valued up to €475,000, the VAT rate rises to 19%. This means that for the first 130 sq.m. and up to €350,000, VAT remains at 5%, but for any additional area up to 190 sq.m., VAT increases to 19%. For properties exceeding 190 sq.m. with a value over €475,000, the 19% VAT rate applies from the very first square meter and cent.
In addition to these adjustments, the law rectifies previous inaccuracies concerning property transfers to adult children. The updated provisions ensure that no VAT payment is required if a beneficiary transfers a dwelling to an adult child who meets the necessary criteria for the reduced VAT rate at the time of the transfer.
Should the eligible adult child cease to use the residence as their main and permanent place of residence within ten years, they are obligated to assume the responsibility of paying the VAT benefit and notify the Tax Department in writing. Furthermore, if a parent transfers ownership of a dwelling to their child while continuing to reside there, no VAT benefit payment is necessary.
These changes in VAT legislation bring clarity and fairness to property transfers and benefit those looking to transfer their properties to their adult children. It's important for individuals involved in property transactions to stay informed about these updates to ensure compliance with the law.
Originally published Nov 2, 2023
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