House VAT puts Nicosia in EU trouble

The European Commission has called on Cyprus to comply with EU value-added tax rules for residences by sending a reasoned opinion to Nicosia, included in the Commission’s June infringements package. If Cyprus does not comply with EU law in time, the Commission could take the case to the Court of Justice of the European Union.

According to a press release, the European Commission decided to send a reasoned opinion to Cyprus for its failure to properly apply EU VAT rules for dwellings purchased or constructed in Cyprus.

Cyprus allows a reduced rate of VAT of 5% on the first 200 square meters of dwellings used as the owner’s main residence, without any other limitations.

The VAT Directive does allow member-states to apply a reduced rate of VAT on housing as part of a social policy. However, the wide scope of the Cypriot legislation and the lack of limitations therein indicate that the measure goes beyond that objective, the Commission argues. The reduced rate is applied regardless of the income, assets and economic situation of the beneficiary, the members of the family that will reside in the dwelling and the maximum total area of the dwellings concerned.