Introduction
The House of Representatives of Cyprus on 3 November 2017, voted into law an amendment to the Cyprus VAT legislation, which will impose VAT at the standard rate of 19% on certain transactions involving immovable property that are carried out for business purposes and that currently are exempt from VAT, in order to be in line with the EU VAT directive.
These amendments are effective from 2 January 2018, with the exception of the provisions in relation to the leasing of immovable property, which entered into effect as from the date the law was published in the Cyprus Government Gazette i.e. 13 November 2017.
Imposition of 19% VAT on building land
Standard VAT rate of 19% will be imposed in all of the following cases:
- transfer of ownership,
2. transfer of indivisible land portion,
3. 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, of non-developed building land which is intended for the construction of one or more structures in the course of carrying out a business activity.
However, no VAT will be imposed on the disposal of shares or shareholdings in companies, resulting in transfer of ownership of related immovable property.
Leasing of immovable property for business purposes
The leasing and/or letting of immovable property to a taxable person for the purposes of carrying on taxable activities, except for the leasing of buildings used for private dwellings will be subject to VAT. The imposition of the law concerns lease agreements which are concluded on or after the effective date of the Law, which means any existing agreements are not affected.
The lessor will have the permanent option not to tax such leases as it will be described in a separate Commissioner of Taxation Notice.
Reverse Charge
For cases in which the recipient of a property that was a result a loan reorganization or forced transfer procedure, is required to account for VAT under the reverse-charge provisions, provided that the recipient is a taxable person and the property is received and used for business purposes. If the property is buildings, the transfer must occur before their first occupation.