The House of Representatives of Cyprus, for the purposes of harmonizing the legislation with the EU Value Added Tax (“VAT”) Directive, voted on 30/11/2017 a new VAT Law which amends the main VAT Law N.95(I)/2000.
A. VAT on the sale of building land (apply as from 02/01/2018)
The supply of undeveloped building land, in the course of a business activity, is subject to VAT at the standard VAT rate of 19%.
Business activity should be based on the facts of each case separately. The supply of land is not taxed when it is done as an isolated transaction.
Criteria should be taken into consideration to determine whether the supply of undeveloped building land is in the course of a business activity:
- Is the activity a serious undertaking earnestly pursued?
- Is the activity an occupation or function, which is actively pursued with reasonable or recognisable continuity?
- Does the activity have a certain measure of substance in terms of the quarterly or annual value of taxable supplies made (bearing in mind that exempt supplies can also be a business)?
- Is the activity conducted in a regular manner and on a sound and recognised business principles?
- Is the activity predominantly concerned with the making of taxable supplies for a consideration?
- Are the taxable supplies that are being made of a kind which, subject to differences of detail, are commonly made by those who seek to profit from them?
- Sale of undeveloped land by a person who inherited the land and who does not carry out a business activity and this transaction took place after seven (7) or ten (10) years followed up by a transaction for another plot of land, then this is a strong indication that it relates to an isolated transaction.
- If the plot of land is company’s asset, its disposal will be a taxable(vatable) transaction, irrespective of the type of economic activity that the company carries out.
- Supply of two (2) plots of land on 2017 and three (3) plots of land on 2018. These transactions are indication of business activity.
No VAT will be imposed on the supply of land located in livestock zone or areas which are not intended for development such as zones/areas of environmental protection, archaeological and agricultural.
B.VAT on the rental of properties (apply as from 13/11/2017)
The lease or rental of immovable property to a taxable person for business premises (all properties other than residential properties) is considered as a taxable transaction and is taxed at a rate of 19%.
The lessor will have the right to elect for such transactions to continue to be exempt by notified the Commissioner. If this right exercise it cannot be retracted a later stage.
Based on the new legislation:
- the lease or rental of immovable property to a taxable person for furtherance of the business is considered as a taxable transaction and is taxed at a rate of 19%, unless the building is used as a dwelling
- the above applies provided that the commencement of the lease or rental agreement was on or after the coming into effect of the amending law
- the value of the supplies in the period of one year has to exceeded €15.600
- the lessor may opt for the exemption from VAT of the lease or rental of immovable property (subject to terms and conditions which will be determined by notification in the Official Gazette of the Republic), provided the lessor informs the Tax Commissioner of this decision
- the lessor cannot subsequently change the decision for the exemption from VAT of the lease or rental
Existing contracts for the lease or rental of real estate (except residential properties), remain in force and are not affected by the above amendment. Therefore, the lease/rental is deemed to be an exempt transaction and is not taxable.
In case of termination and conclusion of a new agreement after 13 November 2017, the lease/rental will be a taxable transaction.
For a property that the lease/rent was made as an exempt transaction before 13 November 2017, the lessor is entitled to deduct the VAT on the construction costs of the building, provided that (i) 10 years have not elapsed since the date of construction/ purchase, and (ii) the lessor concluded a new lease/rental agreement after 13 November 2017 (i.e. a taxable transaction).
In case which the property falls within the 10-year timeframe, the VAT on construction costs is adjusted for the remaining years, starting from the year of its initial use. The initial use is deemed to be the time of acquisition of the building or its first use whichever comes first, and whether the owner was a VAT registered person or not.
C. The reverse charge is imposed on the transfer of property in the context of loan restructuring (apply as from 02/01/2018)
Its apply when a property is transferred from the borrower in the course of a loan restructuring process as well as under a compulsory transfer procedure to the lender.
This provision was enacted in order to facilitate the payment of VAT in cases where the taxpayer is no longer in a sustainable financial position, with a bank having to take possession of the property which was held as a guarantee against the loans provided.
The above supplies are deemed to be taxable transactions for both the recipient and the person who makes them, provided that the recipient receives the goods
in furtherance of the business.
The VAT deduction on the above-mentioned transactions based on the reverse charge method is possible, if:
- the taxable person supplies the property to the recipient
- the recipient is a taxable person at the time of the transaction and receives the Property for furtherance of the business
- input tax is deductible by the taxable person, provided that VAT is accounted for by the recipient