Cyprus has secured the European Commission's approval for the implementation of the reduced VAT rate on first-time home purchases, announced Finance Minister Makis Keravnos, responding to questions after a meeting with the new President of the Cyprus Chamber of Commerce and Industry, Stavros Stavrou.

The new framework for the reduced VAT rate for the purchase or construction of a first home was established in June 2023 and came into effect on November 1st. Initially, the Commission had approved a reduced VAT rate of 5% for the first 110 square meters. However, in consultation with the executive branch, the Parliament decided to increase the limit to 130 square meters. This change raised concerns in the Ministry of Finance about whether it would be approved by the Commission. The issue was addressed in repeated contacts of the Ministry of Finance with Commissioner for Economic Affairs Paolo Gentiloni and the responsible Directorate-General.

As ratified by the Parliament, the law stipulates a reduced VAT rate of 5% for the first 130 square meters of a residential building, valued up to €350,000, provided the total transaction value does not exceed €475,000 and the total built area is no more than 190 square meters.

"I must say that tremendous efforts were made, and I personally had several meetings with the Commissioner and the Director-General of the responsible Directorate-General. After many explanations and arguments, I am pleased to announce that the European Commission has approved the reduced VAT rate of 5% for either a house or an apartment, on the first 130 square meters, valued up to €350,000, provided it does not exceed 190 square meters in total and a maximum value of €475,000, as approved by the Parliament," stated Mr. Keravnos.

In response to a question about whether public finances are equipped to handle any disruptions and slowdown in the economy, Mr. Keravnos stated they can, "precisely because we act proactively as the Ministry of Finance and as a government, and implement, as I have repeatedly said, a prudent economic policy, specifically to be able to address unforeseeable events and developments."

Therefore, he said, "we have a surplus budget for 2024, and within the framework of budget preparation, there are safety measures in place to address these disruptions and geopolitical developments with all their negative implications."