Cyprus VAT on Land – Updates by the Tax Department

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In November 2017, the Cyprus
parliament voted an important amendment to the Cyprus VAT Legislation, which
amends the main VAT Law N.95(I)/2000 concerning taxation of building land, in
order to align it with the provisions of EU VAT Directive 2006/112/EC. The
amendment has entered into force on 2 January 2018.

In November 2017, the Cyprus
parliament voted an important amendment to the Cyprus VAT Legislation, which
amends the main VAT Law N.95(I)/2000 concerning taxation of building land, in
order to align it with the provisions of EU VAT Directive 2006/112/EC. The
amendment has entered into force on 2 January 2018.

Specifically the amendments relate
to (a) the imposition of 19% VAT on the sale of building land, (b) the taxation
of new commercial immovable property leasing contracts and (c) the application
of reverse charge on transactions relating to transfers of immovable property
during the process of loan restructuring.

In relation to commercial
immovable property leasing, the rental/leasing of business premises (i.e. all
properties other than residential properties) are subject to VAT at the
standard rate of 19% when it is a B2B transaction and the recipient is engaged
in taxable activities.

As per the new legislation, the
standard VAT rate of 19% will be imposed in all of the following cases:

(i)transfer of ownership,

(ii)transfer of indivisible land
portion,

(iii)transfer of ownership via contract
or sale agreement or agreement which specifically provides that the ownership
will be transferred on a future date or leasing agreement with buyout option,

the above cases apply to
non-developed building land which is intended for the construction of one or
more structures in the course of carrying out a business activity. 

The Council of Ministers of Cyprus
shall have the power to designate, via relevant regulations to be approved by
Parliament, the types of land which will fall under the category of
non-developed building land, as well as the exact date which will be taken into
account for the identification of the time of supply for VAT purposes.

No VAT will be imposed on the
disposal of shares in companies, resulting in transfer of ownership of related
immovable property.

In late December and January 2018,
the Tax Department has circulated guidelines on the following topics:

Lease / Definition of Business activity

The authorities have clarified
that any lease of commercial property, that may amount to a business activity,
will be subject to VAT. Inter alia, the following criteria will be taken into
account to establish what constitutes business activity:

  • whether the activity is systematic
    or constitutes professional activity which does not necessarily need to be
    commercial or for;
  • whether the activity is pursued
    professionally;
  • whether the activity is
    quantifiable on a fixed period basis;
  • whether the activity is based on
    established business procedures;

It is made clear that individuals
renting out a single property will be exempt as the new VAT additions are aimed
to professionals who pursue this sort of activities as their main business. It
is highlighted that residential properties are excluded. Existing agreements
that would be subject to VAT shall not be affected, unless terminated and new
agreements are entered into. The lessor, may choose to notify the Tax
Authorities should he is exempt from the payment of VAT for a number of reasons
that may include the lease not being a business activity and/or the lessor is
not liable to be registered for VAT purposes.

Sale of Undeveloped Land

It has been clarified that any
types of undeveloped land falling under the definition of “non-developed
buildable land” shall not be subject to VAT. Land which falls under
agricultural land, environmental protection land, land which falls out of local
town planning plans, archaeological interest land and land aimed for the development
of farming shall be exempt from the imposition of VAT irrespective of the
entity which is selling the land (i.e. whether the entity conducts in the sale
in the framework of business activities or not). Several criteria have been set
for the time of sale of the undeveloped land so that any transactions completed
or filed before the 2nd of January 2018 will be exempt.

Reverse Charge

Reverse charges are applied to
transfers when these are made within a restructuring process, loan
restructuring as well as in procedures where the property is transferred by law
to a lender. In such cases, the VAT registered individual is not under an obligation
to be subject to VAT, however the receiver of the property must pay the
corresponding tax and simultaneously have the right to claim input tax.

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