VAT on real estate in Cyprus. For a large villa, the difference can reach €70,000.

VAT on real estate in Cyprus can change the final price of a large home by tens of thousands of euros. New rules limit the application of the 5% rate to both the property's area and value, and once the upper limits are exceeded, the entire transaction may be subject to the 19% rate.

The year 2026 is particularly important for some older projects, which may still benefit from the earlier rules. However, this doesn't mean that purchasing a villa before December 31st is sufficient. The eligibility for the old system is primarily determined by the dates of planning and construction documents and the fulfillment of specific transitional conditions.

VAT on real estate in Cyprus: 5 or 19 percent?

The standard VAT rate for new properties subject to this tax is 19 percent

Preferential rate 5 percent can be used when purchasing or building a property intended for main and permanent place of residence buyer.

This is a very important distinction.

This isn't a general relief for anyone buying their first apartment or house on the island. A property intended solely as an investment, holiday home, or rental property doesn't qualify for the 5% rate simply because it's a first purchase.

Four numbers to remember

After the 2023 reform, the basic system is based on four boundaries:

130 m² – basic limit of the area covered by the preference,

350,000 euros – basic value limit for preferential VAT,

190 m² – maximum total area at which the system can still be used as standard,

475,000 euros – the maximum total value of the property at which the preferential system can still operate.

If the total area exceeds 190 m² or the transaction value exceeds 475,000 euros, according to the new rules, the buyer essentially loses the option to apply the 5% rate and the entire transaction is subject to VAT at 19%.

There are separate solutions for people with disabilities and large families, among others.

130 m² and 350,000 euros are not two independent "pieces"

There is a trap here that makes it easy to incorrectly calculate VAT.

If the property is over 130 m² but not exceeding 190 m², the following applies: proportional mechanism.

Therefore, it is not always possible to simply assume:

350,000 euros × 5%, and the entire remaining price × 19%.

Official rules take into account both the property value and area. PwC also indicates that for properties between the lower and upper limits, the portion subject to the 5% rate is determined proportionally.

Example: 160 m² house for 420,000 euros

Let's assume that we are buying a new house with an area eligible for VAT calculations of 160 m², and the price before VAT is 420,000 euros.

The property is within the upper limits:

160 m² < 190 m²,

420 thousand euro < 475 thousand euro.

So the preference does not disappear.

But since the lower limits of 130 m² and €350,000 are exceeded, a proportion must be applied.

Using the method resulting from the guidelines applicable to such cases, the value attributable to the part covered by the 5% is:

130 / 160 × 350,000 euros = 284,375 euros.

VAT 5% on this part is approximately 14,219 euros.

The remaining 135,625 euros is subject to a rate of 19 percent, which is approximately 25,769 euros.

The total VAT is therefore approximately:

39,988 euros.

If the entire value of €420,000 were subject to the 19% rate, the tax would be 79,800 euros.

In this example, the preference still gives almost 40,000 euro differenceThe methodology for proportional calculation for properties over 130 m² is also demonstrated by industry examples based on guidance from the Cyprus Tax Department.

Above 475,000 euros, a completely different calculation begins.

A much bigger problem occurs when the upper limit is exceeded.

Let's assume that the new villa costs 500,000 euros before VAT and has 200 m² area taken into account when calculating tax.

Both limits of the new system have been exceeded:

475 thousand euros worth,

190 m² of space.

In this case, the preferential rate does not apply.

The entire €500,000 is subject to a 19% rate.

VAT: 95,000 euros

Price with VAT: 595,000 euros

This is where transitional provisions become important.

The old system was much more advantageous for large houses.

Before the reform, the preferential 5% rate was applied to the first 200 m² of living space, without the current value limits of 350,000 and 475,000 euros.

So if exactly the same villa:

200 m²,

500,000 euros net

qualifies for the old system under transitional provisions, the entire 200 m² may be subject to the 5% rate.

In a simplified example:

500,000 euros × 5 percent = 25,000 euros VAT

Price with VAT = 525,000 euros

According to the new rules:

500,000 euros × 19% = 95,000 euros VAT

Difference:

70,000 euros.

This shows why documentation of a specific project can be of enormous value today.

But a purchase in 2026 does not automatically mean the old VAT

This is the most important caveat in the entire material.

In April 2026, Parliament actually changed the regulations regarding the transition period, and the Tax Department announced that certain applications could be considered until December 31, 2026.

However, this is not a general extension of the old system for all new properties sold by the end of the year.

The basic condition remains that a planning permit has been obtained or an application for one has been submitted no later than 31 October 2023.

An additional extension until the end of 2026 applies to cases where delays have occurred on the part of planning authorities.

Who else can benefit from the extension?

According to the explanations provided by the Tax Department and KPMG, these are projects for which the condition regarding the planning permission of 31 October 2023 has been met, and the building permit was issued after January 1, 2025 or has not been issued by December 31, 2026.

In such cases, the Tax Commissioner may also accept appropriate applications between 16 June and 31 December 2026.

However, there is a second group.

If a proper planning application has been submitted early enough, but the building permit was issued no later than December 31, 2024, the deadline for submitting a declaration regarding the old system remained at June 15, 2026.

This deadline has already passed.

That's why it's not enough today to hear from a developer:

“The project is old, so it has 5% VAT.”

Documents need to be checked.

A date from three years ago could be worth tens of thousands of euros

The buyer can now view the new villa, which will be completed in 2026, but the tax treatment may be determined by the documents submitted in 2023.

Therefore, for a larger new property it is worth determining first of all:

• what is the construction area accepted for VAT settlement, and not just the square footage given in the advertisement;
• when the planning permission was applied for and when it was issued;
• when the building permit was issued;
• whether the project actually meets the conditions of the transitional provisions;
• whether the price quoted by the seller includes VAT;
• exactly what part of the price will be covered by the 5% rate and what part by the 19% rate;
• whether the buyer meets the condition of using the house as the main and permanent residence.

This should be confirmed before signing a binding contract and paying a significant advance payment.

Be careful with the "square footage" in the ad

This can also be very important.

The regulations apply to a specific buildable area, and not always to the number of meters that the agent or developer displays in the advertisement.

The offer may include separate internal areas, covered verandas, uncovered terraces, common areas or plot area.

To calculate VAT, you must use the parameters resulting from the relevant project documentation.

The difference between 189 and over 190 m² may have much more serious consequences than the price of one additional meter would suggest.

5% VAT also comes with obligations

The preferential rate is related to the use of the property as a primary and permanent residence.

The Cyprus Tax Department reminds that a person who ceases to use the property in this way before the expiry of 10 years, is obliged to inform the office and may be obliged to return the appropriate part of the tax benefit for the remaining period.

This is another reason why an investment buyer should not automatically assume a 5% rate in their calculation.

Applications for a preferential rate certificate are currently submitted via the system Tax For AllThe Tax Department also provides its own tool for calculating VAT on real estate.

So is it worth buying before the end of 2026?

This question cannot be answered based on purchase date alone.

If the buyer chooses a new apartment for €200,000-250,000 with an area significantly below 130 m² and meets the other conditions, the ending transitional period may not have much significance for them.

The situation is completely different with a large villa costing 450, 500 or 700 thousand euros.

In this case, the old system can be of great value – but only if the specific project is actually covered by it and all required conditions have been met.

Therefore, the first question to ask a developer for a larger new property should be:

“According to which VAT regulations will this particular property be settled and what documents confirm this?”

Only later should it be calculated whether the purchase is actually more advantageous before the end of the year.

Because in the Cypriot market, a permit date from a few years ago can change the purchase price today by tens of thousands of euros.

Sources: Tax Department of the Republic of Cyprus, Ministry of Finance of the Republic of Cyprus, KPMG Cyprus, PwC Cyprus