Reduced VAT Rate for School Construction and Renovation

On 5 December 2025, the Council of Ministers issued Decree No. 364/2025, amending Table B of Schedule Five of the VAT Law (Law 95(I)/2000). The amendment introduces a reduced 5% VAT rate for the construction and renovation of buildings used for VAT-exempt educational activities.

The amendment adds a new paragraph to Table B of Schedule Five, providing that a 5% VAT rate applies to:

• Construction and renovation of public or private educational buildings,
• Used for exempt educational services as defined under Paragraph 9 (α), (β) excluding private tutoring institutes, (γ), and (η) of Schedule 7 of the VAT Law.

The reduced rate does not apply to:

• Afternoon schools / tutoring institutes (“φροντιστήρια”),
• Or any educational activities not covered by the VAT exemption definition.

This measure aims to reduce capital investment costs for schools, support non-profit and public educational organisations and also enhance accessibility to quality educational infrastructure.

However, in practice, many schools also operate facilities for non-exempt activities (e.g., summer schools, afternoon classes, extracurricular programmes). This raises questions regarding whether such mixed-use cases still qualify for the reduced rate. As such, additional guidance from the Cyprus Tax Department is expected.

The Decree became effective on 5 December 2025, the date of its publication in the Official Gazette.

Under Article 55 of the Cyprus VAT Act, when a VAT rate is reduced:

• Taxpayers may choose to apply the new reduced rate (5%) to services supplied after the effective date,
• Even if payment or a VAT invoice was issued before that date.

This offers flexibility for ongoing construction or renovation projects.

Should you require further clarifications concerning the above, please contact our trusted advisors in the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.

Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of green initiatives, indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.