VAT on Construction Services in Cyprus

VAT rates on construction works in Cyprus

The VAT rate on construction works in Cyprus depends on the type of works and who is receiving them. Commercial construction is subject to the standard 19% rate. The first supply of a new residential build by a developer is taxable, at a reduced rate where the buyer qualifies as a first-home buyer. Renovation and repair works on a primary private residence qualify for the 5% reduced rate subject to specific conditions. Infrastructure and civil engineering works are generally subject to 19%.

VAT rates on different construction activities

Article 11b — the domestic reverse charge for construction

Article 11b of the Cyprus VAT Law introduces a domestic reverse charge mechanism for construction and installation services supplied between VAT-registered contractors in Cyprus. Under Article 11b when a subcontractor provides construction services to a main contractor the subcontractor does not charge VAT on their invoice. Instead the main contractor accounts for the VAT on their own VAT return — declaring both output VAT as if they made the supply and input VAT as a purchase. For fully taxable contractors the net VAT effect is zero but the accounting treatment must be correct.

Services covered by Article 11b reverse charge

• Construction of buildings, structures and civil engineering works
• Demolition and site clearance
• Electrical installation and wiring
• Plumbing, heating and air conditioning installation
• Plastering, rendering and dry lining
• Carpentry, joinery and glazing
• Tiling, flooring and painting when carried out as part of a construction contract
• Scaffolding and temporary works
• Hire of construction plant and equipment with an operator
• Supply and installation of materials as part of a construction contract

How to invoice correctly under Article 11b

A subcontractor invoice under Article 11b should show the description of works, the net amount, zero VAT, and a clear notation that Article 11b reverse charge applies — for example: 'Reverse charge applies under Article 11b of the Cyprus VAT Law. VAT to be accounted for by the recipient.' Never add VAT to a reverse charge invoice. If you do the main contractor will pay VAT twice — once on the invoice and once on their own return — and recovering the overpaid amount is a protracted process with the Tax Department.

VAT recovery on construction costs

A business constructing a commercial property for use in its taxable activities can recover input VAT on all construction costs. A property developer building residential units for sale can recover input VAT on construction costs because the first sale of a new residential unit is a taxable supply — reduced-rate supplies still allow full input VAT recovery. A business constructing property for exempt use — residential letting, exempt financial services — cannot recover input VAT on construction costs. Mixed-use developments require a partial exemption apportionment of the input VAT.

Construction and the Capital Goods Scheme

Any building or civil engineering work, whatever its cost, falls within the Capital Goods Scheme with a 10-year adjustment period. If you claim input VAT on the construction cost and later change the use of the building — from taxable to exempt or vice versa — annual CGS adjustments are required for the remaining adjustment intervals. Construction projects must be tracked from first use and records maintained for the full 10-year period.