Amendments to Schedules 5 and 8 of the VAT Law

The Council of Ministers has issued new Decrees amending Schedules 5 and 8 of the VAT Law (95(I)/2000). The amendments introduce revised definitions affecting the VAT treatment of the supply of buildings and the application of reduced VAT rate for residential property, including the supply and construction of dwellings.

Both Decrees will enter into force on 1 September 2026. 

The amendment to Schedule 8 revises the provisions determining when the transfer of buildings or parts thereof is subject to VAT.

Scope of taxable supplies

The following transactions fall within the scope of VAT where they take place before first occupation:

- The transfer of buildings or parts thereof, including the land transferred together with them or an undivided share; 
- The transfer of possession of buildings under:
  - a sale contract,
  - an agreement providing for future transfer, or 
  - a lease with an option to purchase.

Definitions (from 1 September 2026)

For the purposes of Schedule 8:

- First occupation means the first use of the building after its delivery or construction, including self-occupation, own use, leasing or any other use carried out on a systematic basis.
- First use means systematic use or exploitation of the building for a period of at least 18 months.

Comparison of the rules – before and after 1 September 2026

Until 31 August 2026 
Under the framework introduced in 2022, the supply of a completed building was subject to VAT where:
- The first or subsequent supply took place within five years from completion, and 
- The building had not been used on a continuous basis for at least 24 months by a non-related party.

Supplies taking place after the five-year period were exempt, regardless of use.

From 1 September 2026 
The VAT treatment will instead depend on whether the transfer takes place before or after first occupation:
- Supplies before first occupation will be subject to VAT.
- Supplies after first occupation will be subject to the general exemption for immovable property.

This represents a fundamental shift from a time-based test (5-year rule) to a use-based test (first occupation).

The amendment to Schedule 5 introduces harmonised definitions that directly affect the application of reduced VAT rate to residential property.

Particular focus – Table C (supply and construction of dwellings)

Table C, which governs the application of the reduced VAT rate on the supply and construction of a residence (κατοικία) to eligible individuals, is specifically affected.

The Decree replaces the definitions of:

- First occupation: the first systematic use of the building after its delivery or construction, including self-occupation, own use, leasing or any other continuous use.
- First use: systematic use or exploitation for a period of at least 18 months.

These revised definitions are particularly relevant where:
- A dwelling has been used prior to its transfer;
- Eligibility for the reduced VAT rate depends on whether the property is considered newly occupied or previously used;
- There is a time gap between completion, use and transfer.

Given the extensive application of the reduced VAT rate in the residential market, the changes may have a significant impact on developers, contractors and purchasers benefiting from the reduced VAT rate.

Table B – Renovation of private dwellings

The amendment also revises the definition of renovation for the purposes of paragraphs 11 and 11A of Table B.

A private residence is considered old where at least three years have elapsed since its first occupation, while the required 18-month first-use period runs concurrently with the three-year period.

The same conditions apply to renovation works aimed at improving energy performance or structural adequacy.

Effective date

Both Decrees will enter into force on 1 September 2026. 

Businesses should review ongoing projects, contracts and planned transactions to assess the VAT implications ahead of the effective date.

Key implications

The amendments are expected to impact:

- Developers and property owners involved in residential projects;
- Transactions taking place close to the transition date (August–September 2026);
- Supplies or construction of a primary residence;
- Eligibility for application of the reduced VAT rate where prior use of the property exists;
- Pricing structures, contractual terms and VAT compliance processes.

Further guidance from the Tax Department is expected to clarify practical aspects of the application of the new provisions.

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.