VAT break for young couples buying land for first home

Young couples buying land for their first home in Cyprus may only pay 5 per cent VAT on its purchase price rather than 19 per cent under a draft bill submitted to parliament by the government.

The Government has submitted a draft bill to parliament indirectly exempting from payment of 19 per cent VAT young couples who buy land for the purpose of building a primary residence.

The issue is related to the passage of a law last November imposing 19 per cent VAT on building land. In its wake, persons buying a finished housing unit or apartment as their primary dwelling must pay 5 per cent VAT, whereas purchasing a plot of land for owner-occupied housing incurs a 19 per cent VAT charge.

Now, the new bill provides that, whereas newlyweds buying land for owner-occupied housing will pay the full tax rate, 14 per cent of the VAT imposed on the value of the land would be returned to them in the form of a grant so that ultimately, they only pay 5 per cent VAT.

Lawmakers meanwhile have tabled a legislative proposal aiming to eliminate a distortion where certain buyers of real estate must pay property transfer fees while others do not. The bill was tabled by Disy MP Averof Neophytou.

When a person buys a new property in Cyprus and pays VAT on it, he or she is not subject to transfer fees, whereas transfer fees do apply when the transaction involves a land lease.

But not all MPs are on board with the proposal, which was discussed during a closed-doors session of the House finance committee.  Whereas the lease option might benefit entrepreneurship – by eliminating transfer fees – this should not be done at the expense of state revenues, as some of them believe.

After the VAT on building land was passed late last year, parliament brought regulations specifying which type of development would be subject to the tax. Protected zones and farming land were exempted.