European Commission gives Cyprus a month for changes to real estate VAT | Cyprus Mail'European Commission gives Cyprus a month to change VAT on real estate | Cyprus Mail

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The European Commission has given Cyprus until mid-February to introduce new legislation governing the collection of a reduced VAT rate on real estate, or it will push ahead with procedures to break the rules.

Brussels is holding Cyprus firmly in its grip, letting Nicosia know that if it does not change the current legislation by February 15, the''will advance the initiated rule-breaking procedures that began last summer.

The complicating circumstances are that Parliament is currently on recess due to the upcoming presidential elections.

In a letter to lawmakers dated December 16, 2022, Giorgos Panteli, Permanent Secretary of the Ministry of Finance, warned lawmakers that time was running out. Copies of the letter were also sent to the attorney general and the tax commissioner.

Brussels claims Cyprus is incorrectly applying VAT rules for houses bought or built here. VAT Directive 2017/541 allows member states to apply a lower rate for first dwellings as part of social policy. However''with an area of 220 square meters and a property value of up to 350,000 euros. For apartments, the lower rate will apply to the first 90 square meters with a total area of 110 square meters and a property value of up to 200,000 euros. In addition, a special article states that the total area criterion does not apply to persons with disabilities.

The idea, however, sparked strong opposition from several organizations - the Federation of Employers and Industrialists, the Chamber of Commerce and Industry, the Organization of Land and Property Owners of Cyprus and the Association of Property Appraisers. They have, on the contrary, proposed to increase the value of residential real estate, both houses and apartments, to 500,000 euros.

And they point out that with the current inflation and the rising cost of building materials''no one will be able to find a house or apartment with the square meters and value specified in the law - making the bill useless.

The opposition parties, including mainly AKEL and EDEK, are also opposed. The latter have made it clear that if the bill comes before the plenum in the form presented, they will vote against it.

The daily Politis contacted Panteli at the Finance Ministry to ask whether the government would be open to a new round of discussions with stakeholders. Panteli replied in the negative. "The Finance Ministry will not enter into deliberations with stakeholders on this bill. The MPs themselves should be responsible and vote in favor or against it,'''he said.

At the same time, Christiana Erotokritou, DIKO MP and chairwoman of the parliamentary finance committee, said lawmakers are ready to call an extraordinary session to discuss the issue despite the parliamentary recess.

In February last year, the government put the balance sheet issue in the bill. But opposition within Parliament forced it to go back to draft and present an amended bill, which was first shown to MPs at the end of June.

The law currently provides for the application of a reduced VAT rate of 5 percent for the first 200 square meters of a main dwelling without any restrictions. This reduced rate applies regardless of income, property or