Newsletter 19

 

22 January 2018

AMENDMENTS TO VAT LEGISLATION

VAT on the supply of undeveloped buildable land and on the letting of immovable property

The Cyprus House of Representatives voted on 3rd of November 2017, amendments to VAT Legislation concerning taxation of building land in order to harmonize with the provisions of EU VAT Directive.
The amended Law introduces:

a) Imposition of VAT at the standard rate of 19% on the sale of building land

Transfers of undeveloped building land by persons performing an economic activity are subject to 19% VAT as from 2 January 2018. Such land taxation is determined by the following factors:
• Type Classification of Land (subject to exemptions like plots of land which are in a livestock area/zone, outside development zones/areas such as environmental, archaeological, farming)
• Economic activity of seller according to general and case criteria
• Frequency of Transactions
• Nature of the Supply

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

b) Imposition of VAT at the standard rate of 19% on letting of immovable property for business purposes

The leasing of immovable property, except buildings which are used as residential dwellings, to taxable persons for taxable business activities will be subject to 19% VAT, unless an opt-out right is exercised by the lessor. The provisions are affective as from 13 November 2017. Recent Circular has clarified among others:

• The imposition of tax will apply to rental agreements which are enter into force on or after the effective date of the Law
• Option for non-imposition of VAT is permanent following the mandatory submission of a declaration form within 10 days from agreement conclusion.
• The opt out application must be accompanied by a signed rental agreement hence forcing the parties to also pay stamp duties on the value of the agreement
• The election not to tax can be made either for the entire property or for a functional part of the property.
• The non-taxation election concerns a specific property and a particular owner and does not bind the next owner
• Automatic renewal and automatic rent increase clauses in existing lease agreements not creating new contracts subject to VAT
• Sub-leasing VAT treatment
• Leasing to partially exempt lessees performing taxable activities over 90% is subject to VAT
• Potential to recover input VAT on capital goods adjustment

c) Application of Reverse Charge mechanism on supply of land and property under loan restructing and/or force-sale agreement

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 method. The provision is effective as from 2 January 2018 and will remain in force for a limited timeframe, currently until 31 December 2019.

There are terms and conditions for each case separately and for this reason please contact us for more information or clarifications.