VAT on Property in Cyprus: The Complete Guide

Understanding VAT is one of the most important steps when buying real estate in Cyprus, and it’s where many investors seek expert support.

At Square One, we guide our clients through the entire acquisition process, ensuring each purchase is structured to maximise VAT advantages while staying fully compliant with Cypriot tax law.

Whether you’re a local buyer or an international investor, this guide breaks down everything you need to know about VAT on residential property, including how to benefit from the reduced 5% rate, when 19% applies, and what to avoid.

What Is VAT and When Does It Apply?

VAT (Value Added Tax) applies to new residential properties sold for the first time by VAT-registered developers. Resale properties are not subject to VAT, but may incur Transfer Fees.

VAT Rates for Real Estate Transactions

At Square One, we specialise in guiding investors through this structure and helping determine whether their purchase qualifies for the reduced VAT rate.

Who Qualifies for the Reduced 5% VAT Rate?

Buyers can benefit from a 5% VAT rate (instead of 19%) when the property is acquired for use as a main residence. Strict eligibility criteria apply, and navigating them correctly is essential to avoid unnecessary tax exposure.

Eligibility Criteria for 5% VAT

• Buyer must be an individual (not a company)
• Property must be the buyer’s main and permanent residence
• Minimum 10-year occupancy requirement
• Buyer must not take possession before receiving VAT approval
• Applications must be submitted via the Tax For All (TFA) portal (mandatory from 27 May 2024)

Limitations for 5% VAT

Note: If any of these thresholds are exceeded, the entire property is taxed at 19%.

Square One helps buyers assess eligibility from day one and ensures the correct documentation is prepared — saving time and reducing costly mistakes.

How to Apply for the Reduced 5% VAT Rate

You can apply for the reduced VAT as soon as the building permit is submitted — even before it's officially issued.

Step-by-Step Application Process

1. Submit your application via the TFA portal
2. Provide a formal declaration of use as your primary residence
3. Wait for official approval before taking possession of the property
4. Square One supports you with this entire process, including coordination with your legal and tax advisors

Approval usually takes around one month. Taking possession before approval will result in automatic disqualification from the 5% rate.

Examples of VAT Calculations

Example 1: Eligible Buyer (Individual)

• Property price: €300,000
• Buildable area: 120 m²
• VAT: €300,000 × 5% = €15,000
• Total purchase price including VAT: €315,000

Example 2: Ineligible Buyer (Company)

• VAT: €300,000 × 19% = €57,000
• Total price: €357,000

Example 3: Mixed VAT on High-Value Property

• Property price: €450,000
• First €350,000 × 5% = €17,500
• Remaining €100,000 × 19% = €19,000
• Total VAT: €36,500
• Total price: €486,500

Refunds and VAT Clawback Rules

14% VAT Refund After Approval

If you paid the full 19% VAT but later qualified for the 5% rate, you’re entitled to a 14% refund. This refund is either:

• Credited to your next payment to the developer, or
• Refunded directly if the property has been paid in full

Square One ensures the correct documentation is in place so clients can recover excess VAT quickly and efficiently.

Clawback for Early Sale or Lease

If you sell or rent out the property before the required 10-year residency period, a portion of the VAT benefit must be repaid.

Clawback formula: Refunded VAT × (10 – number of years of residence) ÷ 10

Example: If the property was used as a main residence for 4 years, 60% of the refunded VAT must be returned to the state.

Voluntary Cancellation and Reuse

If a buyer no longer wishes to use the property as a main home, the VAT benefit can be voluntarily returned, allowing them to reuse the 5% rate on another qualifying property in the future.

VAT on Short-Term Rentals in Cyprus

Investors buying property for short-term rentals (e.g. Airbnb, serviced units) face a different VAT structure, with opportunities for recovery of the initial VAT paid if structured correctly.

Short-Term Rental VAT Summary

At Square One, we help structure your investment model to be fully compliant — and help you register, file, and recover VAT if you're eligible.

Can Investors Recover the 19% VAT Paid on Purchase?

Yes — if your property is used exclusively for VAT-taxable short-term rentals, you may be eligible to recover the 19% VAT paid on acquisition.

Conditions for VAT Recovery

• The property must be used consistently for taxable rental activities
• The recovery is subject to a 10-year adjustment period
• If the property’s use changes to VAT-exempt (e.g. long-term lease), part of the reclaimed VAT must be repaid

Square One works closely with experienced tax advisors to help clients evaluate the feasibility and long-term benefits of input VAT recovery.

Conclusion

Understanding how VAT works in Cyprus is key to making a profitable and tax-efficient real estate investment. The reduced 5% VAT rate provides excellent value for individuals purchasing a home, while strategic short-term rental investments may benefit from partial or full VAT recovery — if structured properly.

At Square One, we don’t just sell property — we guide you through every step, from understanding your VAT eligibility to submitting applications and managing rental compliance.

Our in-house specialists and network of legal and tax professionals ensure your investment is protected, optimised, and aligned with Cyprus law.

Whether you're acquiring your future home or building a rental portfolio, our team helps you get it right from Square One.

Disclaimer

This article is provided for general information purposes only and does not constitute legal or tax advice. Always consult a licensed tax advisor for personalised guidance.