The European Commission has issued a reasoned opinion to Cyprus, urging the country to adhere to the European Union’s Value Added Tax (VAT) regulations on dwellings.
According to an official press release, Cyprus is failing to correctly implement EU VAT rules regarding the purchase or construction of dwellings within its jurisdiction. Notably, Cyprus currently allows for a reduced VAT rate of 5% on the initial 200 m2 of dwellings designated as primary and permanent residences, without imposing any additional limitations, the EU Commission said.
While the VAT Directive (Council Directive 2006/112/EC) permits Member States to apply reduced VAT rates on housing as part of their social policy, the Commission highlights that Cyprus’s legislation extends beyond the intended scope.
The broad application of the reduced rate, without considering factors such as the beneficiary’s income, assets, economic situation, the occupants of the dwelling, or the maximum allowable total area, raises concerns over the measure’s compliance with the VAT Directive, the Commission said.
The issuance of the reasoned opinion marks the second stage in the infringement procedure initiated by the Commission in July 2021, which began with the sending of a formal notice to Cyprus.
The country now has two months to address the shortcomings outlined in the reasoned opinion. Failure to take appropriate action within this timeframe may prompt the Commission to refer the case to the European Court of Justice.