The European Commission disagrees with the agreed-upon consensus proposal in Parliament regarding the imposition of a reduced VAT rate on the construction or acquisition of primary residences. This statement was made by George Pantelis, the Director-General of the Ministry of Finance, during the parliamentary Committee on Economic Affairs.

Considering the timetable for the submission of the legislation to the plenary session on June 8th, the committee will hold an extraordinary meeting this Thursday. Christiana Erotokritou, the Chair of the Committee, stated that there are currently two options: the original government bill or a modified formula based on discussions with the Commission's Directorate-General for Taxation.

Ms. Erotokritou reminded everyone that the original bill specified particular value amounts and property areas for apartments and houses, with separate rates for each. However, it has since evolved based on the recommendations of all stakeholders with the aim to unify the two categories.

"Whether in its original form, as submitted with specific values and increased areas, or through a modified version, which may arise from amendments proposed by certain parties or even by the committee itself during the discussions of this legislation, the final version of the bill will be presented to the plenary on June 8th, and this date will not change," she added.

It is worth noting that the agreement reached in the previous week included the elimination of the distinction between apartments and houses, and the implementation of a reduced 5% VAT rate for the first 190 sq.m. for properties valued up to €350,000. Additionally, properties valued up to €475,000 and with an area of up to 190 sq.m. would also benefit from reduced VAT for the initial  €350,000, while the remaining amount (€125,000) would be subject to a 19% VAT rate.

However, Mr. Pantelis mentioned that "the European Commision’s conclusion is that they do not consider the bill to be social targeted, since there is no limit regarding the minimum size of the residence or apartment.” He further stated that the Commission suggests a size limit of 110 sq.m.

Additionally, Mr. Pantelis highlighted that regarding the infringement procedure concerning the existing legislation, the Commission is expected to send a second letter to the Republic of Cyprus in June, granting a two-month deadline for the authorities to respond with legal arguments. The next stage would initiate the proceedings before the European Court of Justice, which would take place by September or October.

However, it should be noted that in the case of the new legislation being approved, it would be re-evaluated by the Commission's services. If it is deemed inconsistent with the acquis communautaire, the Commission would reactivate the infringement process.

According to Ms. Erotokritou, the objective from the beginning was to immediately halt the infringement process initiated against the Republic of Cyprus due to past "misdeeds" and to create a legislative framework that includes as many Cypriot citizens as possible, especially middle class and young couples who aspire to acquire their own house, even with limited financial means.