The European Commission has given the green light for the law approved by the Parliament concerning the reduced VAT rate of 5% for the acquisition primary residence, Finance Minister Makis Keravnos said on Monday.

In June 2023 the parliament approved a law imposing a reduced VAT rate of 5% for the first 130 square metres of a primary residence which was put in effect in November 2023. However, the Commission initially insisted on imposing a reduced VAT rate only for the initial 110 square metres. The Finance Minister held numerous contacts with the EU Finance Commissioner and the head of the competent Directorate-General in a bid to secure the Commission’s consent.

The law, as approved by the Parliament, provides that the reduced VAT rate applies to the first 130 square metres of a primary residence, provided that the value of a primary residence was up to €350,000, while the total transaction value did not exceed €475,000, and the total constructed internal areas did not exceed 190 square metres.

Keravnos said that “tremendous efforts” have been made to secure the Commission’s green light, noting that he repeatedly met with the EU Finance Commissioner Paolo Gentiloni and the head of the competent DG advocating for the approval of the legislation enacted by the Parliament.

“I am happy to announce that the European Commission has approved the reduced VAT rate of 5% either for a house or an apartment for the first 130 square metres of a value of up to €350,000, provided that the residence does not exceed 190 square metres in area and €475,000 in value, that is, as the law was approved by Parliament,” he said.

Fiscal buffers could tackle geopolitical disruptions

Responding to a question whether public finances could tackle disruptions stemming from geopolitical tensions in the region, Keravnos recalled that the Finance Ministry and the government pursue a prudent fiscal policy “precisely to be able to tackle events and developments which cannot be foreseen.”

Many businesspeople in Cyprus have expressed fears over the war between Israel and militant group Hamas in the neighbouring Gaza Strip as well as the impact of attacks by Houthi on commercial ships in the Red Sea on the economy.

“Therefore, we have a budget in surplus for 2024 and the budget has safety clauses to tackle these disruptions and geopolitical developments and the ensuing negative impact,” Keravnos added.