The Cyprus Council of Ministers has issued two Decrees amending the Fifth and Eighth Schedules of the Cyprus VAT Law, introducing important changes to the criteria used to determine when a building is considered “new” for VAT purposes. These amendments take effect from 1 September 2026 and are expected to have a significant impact on property developers, investors, property owners and prospective purchasers.

Executive Summary

Under the revised rules, the determination of whether a building is “new” will no longer depend solely on the passage of time since construction or completion. Instead, substantial emphasis is placed on whether the property has been subject to systematic use for a period exceeding eighteen (18) months.

As a result, buildings that have remained vacant or underutilised for prolonged periods may continue to be treated as “new” and therefore fall within the scope of VAT upon transfer. Conversely, buildings which have been systematically occupied or exploited for more than eighteen months may qualify as second-hand properties and potentially benefit from a VAT exemption.

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Definition of First Occupation and First Use

The amendments introduce clearer definitions of:

First Occupation

The first use of a building after its delivery or construction, including owner occupation, personal use, leasing or any other systematic form of use.

First Use

The systematic utilisation or exploitation of a building after delivery or construction for a continuous period of at least eighteen (18) months.

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Impact on the VAT Treatment of Property Transactions

Supply of Buildings

Under the amended provisions, a building and the associated land will generally be treated as new where the supply occurs before the building has been subject to systematic use for a period exceeding eighteen months. Such transactions will generally be subject to VAT.

Where a building has been systematically used for more than eighteen months, it may qualify as a second-hand building and therefore fall within the VAT exemption provisions, subject to the specific facts of each case.

 

Reduced 5% VAT Rate

The amendments also affect the application of the reduced VAT rate available in certain circumstances.

In particular, the revised provisions clarify that the eighteen-month period of systematic use is relevant when assessing whether a residence qualifies as an “old” residence for renovation purposes. Furthermore, the amendments provide greater certainty that buildings sold before completing eighteen months of systematic use may still qualify for the reduced VAT rate, provided all relevant eligibility conditions are satisfied.

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Practical Considerations

For Developers and Property Owners

Developers and property owners should maintain adequate evidence demonstrating the commencement and duration of property use. Documents such as lease agreements, utility records, occupancy records and other supporting evidence may become increasingly important in supporting the VAT treatment of a transaction.

For Purchasers and Investors

Prospective buyers and investors should carefully assess the usage history of a property as part of their due diligence process. The VAT implications under the revised framework may differ substantially from those that applied under the previous regime.

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Andersen’s Comments

The amendments represent a significant shift in the VAT treatment of immovable property by linking the concept of a “new” building more closely to actual economic use rather than merely the time elapsed since construction.

Given the potentially significant VAT exposures involved in property transactions, taxpayers should carefully evaluate the implications of these changes and ensure that sufficient documentary evidence exists to support the intended VAT treatment.

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How Andersen Can Help

Andersen can assist with:

• Assessing the VAT treatment of proposed property transactions;
• Reviewing existing property structures and holdings;
• Advising on eligibility for the reduced VAT rate;
• Performing VAT due diligence on acquisitions and disposals; and
• Liaising with the Cyprus Tax Department where clarification is required.