On 8th June 2023 the House of Representatives passed the amending law (Ν.42(I)/2023) introducing important changes on the application of the reduced Value Added tax (VAT) rate of 5% on the purchase or construction of primary and permanent residence in the Republic which entered into force on 16 June 2023.
Further to the legislation introduced, a reduced 5% VAT shall apply on the first 130 square meters (m²) of a residence purchased or constructed of a total value up to €350,000, provided that the total value of the acquisition does not exceed €475,000, and its buildable residential area does not exceed 190m².
The below table explains how this would apply on each situation.
What happens if you stop using the residence as primary and permanent or acquire a new residence before the expiration of the 10 years?
Under the old provisions, a person acquiring a new primary and permanent residence had to pay back the full amount of VAT benefited. Under the new legislation this has changed to factor-in the “occupied period” of the person.
Under the new provisions the below requirements apply to both.
- beneficiaries who cease to use the residence as a primary and permanent residence before the lapse of ten (10) years and
- persons who exercised the right to acquire a residence at a reduced VAT rate and wish to acquire another residence before the expiration of ten (10) years.
- Notify the Tax Department (hereinafter “TD”) within thirty (30) days from the date he has ceased to use it as a primary and permanent residence, and
- Pay the amount of the difference between the amounts of tax resulting from the application of the reduced rate and the standard rate, as in force at the time of delivery or construction of the residence, corresponding to the period of time that he has not used the residence for the purposes of owner-occupied residence.
Who is a beneficiary person?
Beneficiary person is defined as any individual who:
- has reached the age of eighteen (18) on the date on which he applies for a reduced rate for the construction or purchase of a residence;
- acquires a residence for use as its main and permanent place of residence in the Republic;
- does not have any other residence in the Republic, which he has acquired through the imposition of a reduced rate of VAT;
in case he/she has received any grant for the acquisition of a residence under the Special Grant (Purchase or Construction of a House) Law, he/she has returned.
The beneficiary person submits a declaration to the TD before the residence is delivered accompanied by supporting documentation such as sale agreements and architectural plans. Within 6 months of acquiring possession of the residence the beneficiary has to submit evidence that he is using the residence (e.g., electricity, water bills etc.)
Following the review by the TD, the beneficiary person receives a certified copy of the application submitted to the TD, which he delivers to the seller of the residence or, in the case of the construction of a residence, to the contractor, in which case the seller or contractor is obliged to apply a reduced rate of VAT.
- Married person
A married person can apply for a reduced tax rate for the construction or purchase of a single residence, provided that their spouse submits a declaration that they do not own any other residence in the Republic that they use as their main and permanent place of residence.
- Transfer of the residence to an adult child
As per the new provisions, no payment is required if the beneficiary transfers the dwelling/residence to one of their adult children, provided that the child meets the necessary criteria to benefit from the application of the reduced rate at the time of the transfer. It is also highlighted that in such cases the TD should be notified in writing. Additionally, the VAT benefit is payable, in case the dwelling’s ownership is transferred from a parent to a child, while the parent continues to live there.
A transitional period is also provided during which the proposed amendments to the VAT Law, with the exception of the amendments concerning the re- application for the 5% VAT within the ten (10) year period, will not apply:
- in cases where urban planning permission has been obtained or an application for such permission has been submitted until 31 October 2023 and
- for which a duly completed application has been submitted to the Competent Authority, within three years from the date the new provision came into effect.
Where the transaction falls within the transitional provisions and thus the previous provision of the VAT Law will be applicable, the reduced rate of 5% VAT will be applicable to the first 200 m2 based on the building coefficient as determined based on the building permit irrespective of the total buildable area of the property or the total value of the transaction.
Please feel free to contact any of our team members to discuss how these provisions may affect you.