The Government has approved two new laws regarding the reduction of the transfer fees and the VAT. This is a temporary measure whose target is basically to encourage the sale of new property in an ailing real estate market.

(a) Reduction of Transfer Fees
This applies to all new purchases sales since 2.12.2011 and for a period of 6 months only. It covers not only houses but all types of real estate (offices etc).

No transfer fee is paid for property for which VAT has been paid.

Transfer fees are reduced by 50% for all properties which have not paid/charged VAT. In this case however the property refers to that which is sold for the first time (e.g. if someone bought a property and had it transferred to his name and sells it again, it does not apply for the new buyer) since the issue of the building/ town planning permit. The 50% reduction applies even if there are no title deeds for transfer but the purchase must take place within the 6 month period, provided the sales contract is deposited with the Lands Office. The reduction does not apply in cases where there is a sales contract which is withdrawn from the Lands Office and re-deposited. So it basically applies to new properties not sold before and it excludes resales etc. The question now is if Mr X bought a building plot on which he built a house on and then sells the house and plot, will it be considered as being a first sale?

(b) Reduction of VAT
So far VAT is charged at 15% when acquiring real estate (it does not apply for land), but for those who use the house/apartment as a permanent residence (i.e. more than 183 days p.a.) they have the right to ask for a 10% refund. So in effect one has to come up with the 15% and after occupation and on application he will apply to get a 10% refund. The new measure stipulates that for such occupiers (permanent residency) the buyer will be liable from the start to pay only 5% saving thus the 10% that he had to come up upfront. In order to be eligible for this 5% the buyer must submit an application to the VAT people and await its approval. In order to be eligible in addition you must bear in mind that it applies to such cases where:

• The application for the building permit was deposited after 1.5.2004.

• The house must be used as the applicant’s permanent residence.

• The total covered area must not exceed 275 sq.mts. If more then the reduction does not apply.

• The reduction applies for the first 200 sq.mts. (in case of families with more than 4 children or 4) the total extent is increased by 15 sq.mts. per child.

• The VAT reduction applies to ready purchases as well as for those who build their own home.

• The square meters referred to covers all covered areas, including covered verandas, basements, attics etc and it is not related to the covered area as this is so developed as a building density.

These two measures are expected to encourage to an extent the unsold properties and the saving in transfer fees can amount to a considerable amount of money – e.g. for a house/apartment say of €300.000 the saving will be approximately €10.000, whereas if this property is charged with a 15% VAT, the saving will be in addition €30.000. So if the acquired property falls within both categories, the saving in this case will be around €40.000.

What is a permanent residence is quite restrictive, practically excluding most foreign buyers.

Note that the other VAT provisions will apply i.e. if a property is sold within 10 years from the acquisition/benefit of the VAT, the applicant must refund the VAT analogy.

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