The House has canceled the first VAT deal for first homes

Cypriot MPs have made a 180 degree turn on the compromise on a reduced VAT rate for smaller first dwellings, backed by the European Commission.

Parliamentarians increased the total floor area of dwellings eligible for the reduced VAT rate of 5% from 19% to 190 square meters.

After a closed-door Finance Committee meeting on Monday, the original 150-square-foot agreement was increased to 190 square feet.

An EU directive requires member states to introduce legislation for 5% VAT on houses up to 140 square meters.

The change in parliament's will is not expected to be taken lightly by Brussels, which has told Cyprus that EU-approved legislation must be in place by June 8.

On Monday, local media reported that Brussels will approve a compromise on a reduced VAT on primary housing of 150 square meters.

Under the previous compromise, an apartment or house up to 150 square meters with a maximum value of 350,000 euros would enjoy a reduced VAT rate of 5%.

Houses between 150 and 200 square meters had to pay the standard VAT rate of 19% for each square meter above the limit up to 200 square meters for properties costing €475,000.

However, a house over 200 square meters is not eligible for the reduced VAT rate of 5% and instead pays 19% for the entire project.

The parliamentarians propose to introduce a VAT rate of 5% on houses up to 190 square meters in area and costing up to 350,000 euros.

For residential houses priced between €350,000 and €475,000 with a maximum floor area of 190 square meters, a VAT rate of 19% will be charged for the difference of €125,000.

For houses priced over 475,000 euros, the VAT rate will be 19%.

If the legislation approved by the EU is not adopted, Cyprus may be penalized by Brussels, as a violation procedure against the Republic was initiated in the summer of 2021.

Many parliamentarians advocated for expanding the size criteria in legislation to align with the Cypriot market for large houses, while the Ministry of Finance insisted on adopting the EU directive before the deadlines.

According to data from the Ministry of Finance for 2021, applications submitted for a reduced VAT rate showed that 35% concerned houses with an area of up to 100 square meters, 17% were for houses ranging from 100 to 140 square meters, while 31% involved properties from 140 to 200 square meters.

Another 11% of the applications concerned houses ranging from 200 to 275 square meters.

Editor's note: Yesterday, Phileleftheros reported that the European Commission approved the proposed bill, which states that the first home, whether an apartment or a house, with an area of up to 150 square meters and a maximum value of 350,000 euros, will benefit from a reduced VAT rate of 5%.

The first houses from 150 sq. m. to 200 sq. m.