The finance minister announced on Monday that the European Commission has approved the application of the reduced 5 percent value-added tax on first-time homes in Cyprus.
Speaking to reporters after a polite meeting with the newly appointed Chamber of Commerce and Industry leadership, Makis Keravnos said as much.
He credited the finance ministry's "tireless efforts" for getting the reduced VAT scheme approved by the European Commission's Directorate-General for Competition.
The minister claims that Brussels has accepted the reduced VAT plan in its exact form as it was approved by the legislature in June of last year.
The first 130 square meters of a first home, for both single-family homes and apartments, are subject to discounted VAT (the full rate is 19%) up to a value of €350,000, as long as the transaction's total value stays under €475,000 and the total buildable area stays under 190 square meters.
Another provision states that the first 190 square meters of the buildable area will be subject to the discounted VAT for individuals with disabilities.
Additionally, the law established a transitional period during which the new regulations would not be applicable in situations in which a town planning permit has already been granted or in which an application for a town planning permit has been submitted within four months of the law's enactment.
The European Commission sent Nicosia a reasoned opinion on June 1st, 2018, stating that the latter was incorrectly applying EU VAT regulations for homes constructed or purchased in Cyprus.
Cyprus was given two months to resolve the issue. The commission could have chosen to send the case to the European Court of Justice if it hadn't taken action in the following two months.
The worst that could have happened was that Brussels would have been fined for noncompliance.
It is believed that the infringement cases were initially filed in the summer of 2021.
EU member states are permitted to impose a lower rate for first homes as a social policy measure under VAT Directive 2017/541. However, it appears that the directive's social policy goal—which called for this kind of exemption—was surpassed by the wide reading of the Cyprus provision.
When it became apparent that those who had invested in real estate in exchange for citizenship under the now-defunct "golden passports" scheme had also profited from the lower VAT rate, the Cypriot policy was also called into question.