VAT on New Builds in Cyprus

VAT on construction costs for new builds

The construction of a new property generates significant input VAT. Labour and materials supplied by contractors, professional fees, architect and engineering costs, site preparation and infrastructure — all carry VAT at 19%. For a developer or business building property for taxable purposes this input VAT is recoverable. For a developer building residential units for sale the first sale is a taxable supply — so input VAT on construction costs is recoverable, even where the buyer qualifies for a reduced rate. For a builder constructing property for exempt use — residential letting — the input VAT is irrecoverable.

Input VAT recovery on new build construction

The reduced rate on a first sale of new residential property

The first sale of a new residential property by a developer is a taxable supply. Houses, apartments and other dwellings that have not previously been sold or occupied fall into this category. A reduced rate can apply when the buyer acquires the home as their primary residence, but only within area and price limits — above them, or for any other buyer, the standard rate applies. The developer can recover input VAT on construction costs, which is why active residential developers often end up in a net repayment position.

New commercial builds and the option to tax

New commercial property — offices, warehouses, retail units, industrial buildings — is subject to 19% VAT on construction costs. If the building will be let commercially the landlord should consider the option to tax before construction begins. Without the option to tax the commercial lettings will be exempt and the input VAT on construction is irrecoverable — a potentially enormous loss on a major development. With the option to tax in place lettings are taxable at 19% and all construction input VAT is fully recoverable.

Capital Goods Scheme for new builds

Every building, whatever its cost, is subject to the Capital Goods Scheme from the date of first use. The developer or owner must track the input VAT claimed on construction and monitor the taxable use of the building annually for 10 years. If the use changes — from taxable commercial letting to exempt residential letting, for example — annual CGS adjustments are required to repay proportionate input VAT. The CGS obligation runs with the building and transfers to a new owner on sale unless the sale qualifies as a Transfer of a Going Concern.

Phased developments and VAT timing

Large residential developments are often built and sold in phases. Each phase has its own VAT timeline — input VAT is claimed as construction costs are incurred and output VAT is declared as units are sold. Cash flow management is important for developers in a regular repayment position — input VAT accumulates during construction before sales generate output VAT. Expedited refund procedures may be available for developers with large verified refund claims. Accurate VAT accounting by phase, plot and period is essential and enables both cash flow planning and audit defence.