Cyprus Proposes to Abolish Reduced VAT Rate for Foreign Property Buyers

The AKEL party has drafted a bill to eliminate the reduced 5% VAT rate for foreign nationals purchasing or constructing homes in Cyprus. The initiative is based on the argument that it provides an unfair advantage to non-residents and is often misused, writes News Cyprus.

The standard VAT rate in Cyprus is 19%. However, some buyers are allowed to reduce it to 5% when purchasing a single property designated as their primary residence. This property cannot be rented out, but the rule is often violated.

MP Giorgos Loukaides emphasized that the reduced VAT was initially introduced to support middle- and low-income families, but in practice, it has fueled mass property purchases by foreign nationals, including wealthy investors and highly paid professionals. This has exacerbated the housing crisis, increasing demand and driving up prices, making homeownership even more challenging for Cypriot citizens.

AKEL representatives recently raised this issue in the parliamentary committee on internal affairs. As part of broader efforts to address the problem, the party officially proposed abolishing the reduced VAT rate for foreign buyers. The MP clarified that the main goal of the proposed changes is to ensure that tax benefits are provided only to those who genuinely need financial support. He criticized both past and present governments for applying tax reductions too broadly, allowing them to be exploited at the expense of local homebuyers.

According to AKEL party members, VAT reductions should be part of the state's social policy aimed at assisting low- and middle-income families rather than benefiting foreign investors. Giorgos Loukaides also pointed out that for too long, the government has prioritized wealthy investors over ordinary citizens struggling to afford housing.

Stricter Real Estate Regulations in Cyprus

The Cypriot government has been tightening its immigration policies and seeking to regulate the real estate market. It is possible that AKEL’s proposal will be accepted. The country is also debating a ban on short-term property rentals. The Cyprus Real Estate Agents Registration Council has proposed this measure, explaining that the short-term rental sector has grown to rival the hotel industry. The rapid expansion of the market has reduced the availability of long-term rental housing and, along with high interest rates and inflation, contributed to rising property prices.

According to Deputy Minister of Tourism Kostas Koumis, the number of registered short-term rental properties in Cyprus increased from 4,765 in 2023 to 8,248 in 2025, providing 36,640 beds. However, in reality, the actual number of such properties is estimated to be two to three times higher, with only 30% officially registered.

Hotel operators, who have developed their businesses over the past 50 years, now face fierce competition from the short-term rental market, which has grown to a comparable scale within just a decade. This raises concerns and calls for regulatory intervention. The Council also highlights safety and quality shortcomings in most short-term rental properties, which undermine the country’s reputation and create an uneven playing field for licensed hotels.

Balancing the Housing Market and Tourism

These initiatives indicate Cyprus’ efforts to balance the real estate and tourism markets, protect local residents, and strengthen the economy. Abolishing the reduced VAT rate for foreigners and potentially restricting short-term rentals aim to improve housing affordability for Cypriots and support the hotel industry. However, these measures could also impact the investment climate and lead to an increase in the shadow market. The final decision will depend on whether the government can find a compromise between economic interests and social fairness.