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Alterations to the VAT & Other

4 December 2016

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Alterations to the VAT & Other

The VAT discount assumes that the buyer must keep in his ownership and use the house for a period of at least 10 years. If he decides to sell, rent out etc, say after a period of 5 years, he will have to repay the Tax Authorities the 50% of the discount, if more than 5 years less etc.

(a) As you are aware for all properties (other than land) VAT is charged at the rate of 19% based on the sales price (first purchase not resale). However, in case of one’s permanent residence (including foreign buyers with one house in Cyprus) this is reduced to 5%. This is a large difference (19-5=14%) but on the other hand transfer fees on non-paying VAT properties amount to around 4% of the purchase price, whereas if VAT payable it comes to zero. So, the difference remains 10% - quite a large one. If a purchase for which VAT is charged (Co or individual) the VAT on the purchase price is deductible from the receiving VAT (check with your auditor). VAT on repairs is reduced to 5%.

The new measures on the VAT stipulates that the 5% VAT (permanent residents) refer only up to 200 sq.mts. of the total house extent, whereas for each additional square meter, the difference is charged on the 19% VAT rate.

The VAT discount assumes that the buyer must keep in his ownership and use the house for a period of at least 10 years. If he decides to sell, rent out etc, say after a period of 5 years, he will have to repay the Tax Authorities the 50% of the discount, if more than 5 years less etc.

The buyer can dispose the VAT discounted property after 10 years and buy another one again with the discounted VAT.

(b) For securing of a passport the new decision is that if one buys real estate €2.0 mil. or more (it does not include land) then this is okay as long as it refers to residential properties. If investment properties (e.g. shops etc) then the €2.0 mil. should be coupled with a home purchase of not less than €500.000 (total €2.5 mil.). The new regulations include the applicant’s spouse and his family and dependent children up to the age of 28 years.
The group investment of €2.500 mil. is abolished.

Investors for the purpose must keep their investment for a minimum period of 3 years from securing the passport.

(c) The dreaded property tax will be abolished as from 1.1.2017. This is good news especially for those who have no other source of income and helps especially the pensioners and others.

(d) The electricity bill on night storage heating will be increased by approximately 42%, a huge increase which has caused an upset to the market causing a rethink and a new proposal under consideration is that this increase should apply for the new and not the existing installations (the matter is pending).

(e) For those who owe taxes, the Director of Income Tax may deduct from any payments due to a Co/person by the Government, the amounts due. It may also inspect your bank accounts and withdraw the amount due to the Government!!

(f) The last RICS/Central Bank index show that property prices in general have started to be stabilized. This is expected to project within the year 2017. Agricultural properties remain at very low levels with practically no interest, whereas building plots due to oversupply will continue a slight downturn trend. Residential is on the up especially holiday homes, whereas commercial properties are also stabilized. It is to remember that prices have been reduced on average from their previous year 2007/2008 by approximately 32% with prevailing prices being similar to those during the year 2006. From the average 32% drop Famagusta region got the top and it reached a 40% reduction, followed by Larnaca 35%, Nicosia by 35%, Limassol 27% and Pafos by 27%.

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