With a proposal to impose a reduced VAT rate. 5% for the first 130 sq.m. first residence, the Plenary of the House of Representatives, decides tomorrow Thursday on the matter, under the pressure of the imposition of a fine by the Court of Justice of the European Union.
According to the report of the competent Parliamentary Finance Committee on the matter, the Committee unanimously decided to increase the maximum limit of 110 sq.m. at 130 sq.m., a limit, as mentioned, which is in line with the market data and at the same time satisfies to the best possible extent the requirements of the European Directive, while it remains, in combination with the maximum transaction value, as a second layer of insurance, socially targeted measure.
It is recalled that on May 31, 2023, the Ministry of Finance submitted a new bill to the Commission, which provided for a revision of the maximum area limits and the introduction of maximum residential value limits, so that the reduced VAT rate (5%) is applied for the first 110 sq.m. of buildable residential area, without separation between apartments and detached houses, up to the value of €350.000, provided that the total value of the transaction does not exceed €475.000 and the total buildable area does not exceed 190 sq.m.
The bill also provides for a summary of welfare, so that in the case of persons with disabilities, the reduced VAT rate (5%) will be applied for the first 190 sq.m. of buildable residential area.
A transitional period is also foreseen, so that the proposed regulations will not be applied, in cases where planning permission has been secured or an application has been submitted to secure planning permission within four months from the entry into force of the proposed law.
The Ministry of Finance considered that the specific text was the result of the discussions held in the committee, particularly on the issue of not distinguishing between apartments and single-family houses in terms of square footage, and is in line with the recommendations of the European Commission.
He will respect the Parliament's verdict says the Minister of Finance
At the same time, the Finance Committee requested the opinion of the Minister of Finance on the amendment he brought to the bill and received a reply letter on June 6, 2023.
The Minister of Finance informed the committee that the time limits have run out and the risk of Cyprus being taken to the European Court of Justice and being fined "is palpable". As he mentioned, in such a case, the European Union can claim to receive the entire amount of own resources, plus default interest that it lost from the reduction of own resources.
It also states that the Ministry of Finance considers that the proposal submitted by the government to the Parliamentary Finance and Budget Committee is the appropriate solution under the circumstances, especially when it already receives the approval of the European Commission, according to its letter dated December 12 2022.
He notes at the same time that the government, weighing all the data and noting that no one can advance the approval of the competent authorities of the European Union, will respect as a matter of principle the proposal formulated by the Commission.
Based on the above data, the government will support this proposal to the competent institutions of the European Union.
Risk of fine
It is noted that the European Commission sent the Republic a warning letter, dated July 15, 2021, in which it is pointed out that the legal framework regulating the application of the reduced VAT rate (5%) for the purchase and construction of a residence in Cyprus is not consistent with the corresponding provisions of of the relevant European Directive, since it does not meet the social policy conditions provided for in said Directive.
The Commission noted that based on the relevant national provisions, there are no conditions for the imposition of the reduced VAT rate (5%) for the purchase and construction of a residence that would justify the social nature of the measure.
He also stated that all citizens of the Republic, citizens of the European Union from other member states, as well as third-country nationals when purchasing a residence in Cyprus benefit from the measure, regardless of the income, assets and financial status of the beneficiary, family members of and the maximum total area of the residence,
He also noted the limit of 200 m5, in order for the purchase or construction of a residence to fall under the reduced VAT rate (141,4%), exceeds the average area of a residence in Cyprus, which, based on Eurostat data, amounted to XNUMX, XNUMX sq.m.
On June 1, 2023, the European Commission sent a reasoned opinion to Cyprus because it does not correctly apply the EU VAT rules for houses bought or built in Cyprus.
The Commission gives Cyprus two months to address the deficiencies identified in the said reasoned opinion. If Cyprus does not take action within the next two months, the Commission may decide to refer the case to the Court of Justice of the European Union.
It is recalled that the original bill that had been submitted concerned the amendment of the Value Added Tax Law, so that the reduced rate of value added tax (VAT) of 5% would be applied for the first 140 square meters (sq. m) of a residence in the case of delivery or construction of a residence whose maximum area does not exceed 200 sq.m.
Source: KYPE