What you should know on the amendment on VAT legislation for transactions involving immovable property

As part of the harmonization process with the European Union, the Republic of Cyprus must also comply with the EU VAT Directive (2006/112/EC). A major aspect of VAT harmonization was the addition of VAT on the sale of land, this requirement was mandatory from European VAT Law, which should be applied without any derogation. In this article, our Head of VAT Department, Andreas Germanos, outlines what is changing and what should you be aware of.

The Cyprus government voted a new VAT Law on 03/11/2017, which amends the main VAT Law N.95(I)/2000. The new law introduces the obligation to implement VAT at the standard rate for the sale of building land and for leasing/rental of business premise. It also introduces the reverse charge mechanism for the supply of building land under a loan restructuring arrangement or confiscation, which mainly affects financial institutions.

A)19% VAT on the sale of land.

The amending law changes the Eighth Schedule of the main VAT Law to subject building land to VAT. Specifically, the supply of undeveloped building land which is intended for the erection of one or more fixed structures is now subject to standard VAT rate (19%), when the supply is part of a person’s economic activities. The amendments were published in newspaper of the government on the 13^th of November 2017 and are effective from the 2^nd of January 2018.

The term undeveloped building land means:

• Plots under creation.
• Plots under construction – which contains an unfinished building within.
• Plots with building permit and title deeds.
• Land, other than the one that is exempted from the new law, which is located on livestock/agriculture areas, archeological and nature protected areas.

B)19% VAT on Rent / Lease

The other introduction of the amending law, is the imposition of standard rate VAT on renting/leasing commercial properties for businesses that are engaging to taxable activities. Exempted are all residential properties. The new legislation offers the option to not tax, that is, one has the option not to add VAT on the rent/lease. The lessor will have the right to be exempted under a procedure, but if this right is exercised it cannot be retracted at a later stage, only if the ownership of the property changes.

The legislation is in force for agreements signed as of 13 November 2017, date on which the amending law was published to the newspaper of the Government, agreements that were signed prior the publication date is not affected.

C)Reverse Charge on the sale of land.

Finally, the amending law introduces article 11D to the main VAT Law which imposes the reverse charge mechanism for financial institutions, whereby the owner offers a property for a loan reconstruction process or under confiscation procedures.

What PHS chould do for you?

We can turn your tax into investment hence you will be making more money and see your bank account and business growing even more.

PHS team will add even more value to your organisation and do the utmost to keep you away from tax implications, bring you up to date with the current legislation and advise you on what is coming next.