VAT on Construction Materials in Cyprus

Construction materials as goods versus services

The VAT treatment of construction materials depends entirely on how they are supplied. Materials sold separately to a builder by a merchant — bags of cement, timber, tiles, plumbing fittings — are goods subject to 19% standard rate regardless of what the builder does with them. The same materials supplied as part of a supply-and-install contract — where the contractor provides both the materials and the labour to install them — are treated as part of a construction service, not as separate goods.

Supply and install — construction service rules apply

Where a contractor supplies materials and installs them as part of a single contract the supply is treated as a supply of construction services not as a supply of goods. The entire contract value — materials and labour — follows the construction service VAT rules. This means Article 11b reverse charge may apply if both the contractor and the recipient are VAT registered, the 5% renovation rate applies to qualifying home renovation works with materials at 5% only up to 50% of the value of the work, and the contractor accounts for VAT on the total consideration including materials.

Article 11b and construction materials

When Article 11b reverse charge applies to a construction contract it applies to the full contract value including materials. A subcontractor supplying and installing materials for a main contractor under Article 11b does not charge VAT on the materials element or the labour element — the entire contract is reverse charged. The main contractor accounts for the total VAT. Separately supplied materials that are not part of a supply-and-install contract are not covered by Article 11b.

The 5% renovation rate and materials

The 5% reduced rate for renovating a home covers materials the contractor supplies and installs as part of the work, but only up to 50% of the value of the service. Materials above that limit are charged at 19%. It does not apply to materials purchased separately without installation. A homeowner buying tiles from a shop and hiring a separate tiler pays 19% on the tiles from the shop. The same homeowner engaging a contractor who supplies and lays the tiles pays 5% on the labour and on the tiles up to the 50% limit.

Input VAT recovery on construction materials

A developer or business purchasing construction materials — either from a merchant or through a supply-and-install contractor — can recover the input VAT where the construction is for taxable business activities. Input VAT on materials used in constructing property for exempt purposes — residential letting — is irrecoverable. For mixed-use developments input VAT on materials must be apportioned between taxable and exempt uses through the partial exemption calculation.