Cyprus Property VAT: What Changes Should Buyers Expect in 2026

Cyprus is currently operating under two parallel VAT systems for new residential properties: the old rules and the new ones. This transitional period will last only until June 2026. 

After that date, the framework becomes much simpler: all transactions will be regulated exclusively by the new rules introduced by Law No. 42(I)/2023, published in the Official Gazette of the Republic of Cyprus on 16 June 2023.

These changes affect everyone planning to buy property in Cyprus.

How It Worked Before 

Under the old system (VAT Law 95(I)/2000 with amendments from 2016), the reduced 5% VAT rate applied to the first 200 m² of a property, regardless of:

• total value,
  

• overall size,
  

• or the buyer’s budget.

This broad and often misused benefit triggered objections from the European Commission, which demanded alignment with EU legislation.

What Has Changed 

The reduced 5% VAT rate (Law No. 42(I)/2023, effective 16 June 2023) now applies only if the property meets ALL of the following criteria:

• Only the first 130 m² qualify for the 5% rate.
  

• Maximum property value: €350,000.
  

• Maximum total area: 190 m².
  

• Maximum total transaction value: €475,000.
  

Anything exceeding these limits is taxed at the standard 19% rate.

For persons with disabilities, the reduced rate applies up to 190 m² (Article 18, Law No. 42(I)/2023).

Why Inspections Became Stricter

Between 2021 and 2024, the Tax Department conducted 5,000+ audits and identified violations worth around €50 million.

The most common abuses involved: purchasing under the 5% rate and then renting the property (including Airbnb), not using the property as a primary residence.

If the owner violates the rules, they must repay the VAT difference of 14%. A voluntary settlement scheme is currently available, allowing taxpayers to repay outstanding VAT without penalties.

What are the Advantages for Families

1) Re-submission for VAT reduction

Previously, if a buyer purchased another property within 10 years, they had to repay the full VAT amount.
Now, the repayment is calculated proportionally, as formalized in Article 18C (Law No. 42(I)/2023).

2) Transferring Property to Children

If the property is transferred to an adult child who qualifies for the 5% VAT rate:

• No VAT refund is required
  

• A written notification to the Tax Department is sufficient.

This important update is formalized in Article 18D (Law No. 42(I)/2023).

Tools for Property Buyers

An official online VAT calculator is already available on Cyprus Tax Department website to help buyers estimate costs under the new rules.

Additionally, the European Commission has officially closed Infringement Case 2021/2118, confirming that the 2023 reforms fully comply with EU requirements.

What the Reform Means for the Market

Starting in 2026, the property market is expected to become more transparent and predictable:

• VAT benefits apply only to genuine primary residences,
  

• fewer speculative purchases,
  

• greater stability for investors in luxury real estate in Cyprus,
  

• stronger demand for modern, energy-efficient homes.
  

Experts from Cyprus Sotheby’s International Realty note that high-quality new-build properties eligible for the reduced VAT rate will become even more sought-after once the reform is complete.

Planning to Purchase Property in Cyprus?

The team at Cyprus Sotheby’s International Realty assists buyers with:

• accurate VAT calculations,
  

• verifying whether a property qualifies for the reduced rate,
  

• selecting top opportunities across Cyprus’s Real estate market,

• supporting the entire process from viewing to handover.