As of November 1, significant changes have been implemented in the legal framework regarding reduced VAT for the purchase or construction of primary residences.
Differentiations have also emerged concerning cases in which the beneficiary is not obligated to refund the VAT when they cease to use the residence as their permanent place of residence.
The new legislation introduces a 5% levy on the first 130 square meters of the property’s buildable area up to a value of €350,000.
In cases where the value is up to €350,000, a 5% VAT is imposed proportionally to the square meters of the buildable area when exceeding 130 sq.m and up to 190 sq.m.
In situations where the property value ranges from €350,000 to €475,000, the reduced VAT rate will apply to the value up to €350,000 and proportionally to the square meters of the buildable area when exceeding 130 sq.m and up to 190 sq.m.
In this scenario, for the additional 60 sq.m. and an additional value of €125,000, the VAT will be at the standard rate of 19%.
According to the Tax Department, there are three cases where VAT does not need to be refunded by beneficiaries.
Specifically, if an individual has benefited from the 5% VAT for the purchase or construction of a new residence and ceases to use it as a residence before ten years have passed, they are only exempt from refunding the VAT if they transfer the property to their adult child, who is a beneficiary and has not benefited from the reduced VAT for the purchase or construction of another residence in the last ten years.
Additionally, in the case where the child has already benefited from the 5% VAT for the purchase or construction of a residence that they use as their residence and has no intention of using the property transferred by the parent as their residence, the parent is obligated to pay the difference between the amounts of the VAT based on the application of the reduced rate and the standard VAT rate, as they were in effect at the time of the purchase or construction of the residence, for the period during which the property has not been used for residential purposes.
If the child no longer uses the residence for which they benefited from the reduced VAT as residence but intends to use the property transferred by the parent, they must pay the difference between the amounts of the tax resulting from the application of the 5% VAT (reduced rate) and the 19% VAT (standard rate), as they were in effect at the time of the purchase or construction of the residence, for the period during which they have not used the property for residential purposes.
In the case of the death of the entitled person, VAT is not refunded.
Also, the heir of the deceased’s residence is not obliged to refund the VAT to the state for the inherited property, regardless of whether the heir benefited from the 5% VAT in the last ten years or not.
Under the previous legislation, there were numerous instances of abuse as the 5% rate applied to 200 sq.m., regardless of the total area.
As a result, many exploited the measure without using the residence as their permanent place of residence, either as a vacation home or for rental purposes, reaping financial benefits.
To recover lost revenue, the Tax Department launched a compliance campaign against those who abused the reduced VAT, resulting in additional taxes being imposed.
