6 things you have to know about New Circular on the Supply of Non-Developed Land

On 2nd of April 2019, the Tax Authority released the VAT Circular 233 that aims to guide taxpayer in relation to the supply of non-developed building land.

The VAT Circular 219 has been withdrawn and replaced by VAT Circular 233 which is effective as from 02/04/2019.

1. Supply of non-developed Land

From 02/01/2019, the supply of non-developed land is subject to standard rate of VAT when is supplied for business purposes. The definition of non-developed land is provided in

VAT Regulation 441/2017 but does not include land which is in a farming zone, zone outside of development area or environmental, archaeological or agricultural zone.

The interpretation of the term “business activity” and whether the transaction falls within the

meaning of carrying out an activity for commercial purposes, will be determined based on the

facts of each case separately.

 

2. Economic activity – Imposition of 19% VAT on non-developed building land

Whereas, the Circular considers that each transaction should be examined separately, the new Circular outlines specific categories of transactions of undeveloped building land which, according to the Tax Department, should always be treated as a taxable supply which is performed under the course of an economic activity, irrespective of the purpose of the transaction, its value or the location of the property. Therefore, a transaction falling within one of the following stated categories, will always be subject to Cypriot VAT and trigger an obligation for the supplier to register for VAT purposes in Cyprus. The reason of this provision is to avoid unfair competition, except if the plot for sale is the last plot in the area, where in such a case the transaction may not fall with the scope of VAT.

The standard VAT rate will be imposed in all of the following cases when a

person is performing economic activity:

• Supply of building land located in specific zones i.e. industrial zone, tourist area, tourist facilities, hotels, organized apartments, holiday houses etc.
• Supply of more than one piece of land from a person,
• Supply of land by the administrator of property of a deceased person
• Supply of a plot following the separation of a land.
• Supply of land by a Self-employed person who is VAT registered and who acquires the land from his profits.

 

3. Exempted form imposition of VAT are the following cases:

 

• Supply of more than one piece of land which are next to each other and are sold as a single supply to a single buyer, except if they fall under the zones stated in point A(1)

 

• Supply of piece or pieces of land given in consideration to the company which perform the separation of the land in order to cover the separation expenses incurred.

 

• Supply of the last or the only piece of land which is in the possession of the seller.

 

• Supply of a piece of land by a taxable person (self – employed individual) who is VAT registered and owns the land for personal purpose (not for commercial purpose), except if the supply consists of supply of more than 1 piece of land.

 

4. Supply of piece of land by a legal person

Supplies of undeveloped building land by legal persons (i.e. Companies or partnerships) and their respective VAT treatment.

 

• Supply of land by a company or partnership who is carrying out business activities, VAT registered or not (even if the transactions carried out are exempt for VAT purposes), with or without a consideration, it is considered to be taxable at the standard rate of VAT.

 

• Supply of land by a company or partnership who is not carrying out business activities (i.e. dormant or holding companies), it does not fall within the scope of Cypriot VAT and therefore no obligation for VAT will arise.

 

• Supply of piece of land by a legal person which was obtained as a result of gift given from the shareholder of the company and was not used for carrying out business activity, no VAT will be imposed on the transaction.

 

5. Time of Supply

No VAT will be imposed on the supply of undeveloped building land if:

• The transfer of land has been performed in accordance with provisions of the relevant Law before 2 January 2018
• The sale agreement has been submitted to the land registry office before 2 January 2018.

 

6. Reverse charge

The imposition of VAT on the supply/transfer of ownership of immovable property (buildings and land which is transferred along with them, given that the transaction takes place before their first use, and/or building land) in cases of loan restructuring and/or the compulsory transfer to the lender, will be carried out via the reverse charge mechanism.

The aforementioned provision is effective as from 2 January 2018 and will continue to apply until the 31^st December 2019

 

How PHS can help you with the New Circular on the Supply of Non-Developed Land?

1. Examine your case if it falls under the provision of the circular 233, and plan what actions should be done to fully comply with the legislation.
2. Assist with the registration to the VAT
3. Assist with payment of the VAT amount to the authorities
4. Once the transaction is completed assist you with the deregistration from the VAT

 

For more advice you can contact us for free consultation

 

By Andreas Germanos

Head of Accounting & VAT, PHS & Partners