The Council of Ministers has issued Orders introducing significant changes to the VAT treatment of immovable property, with effect from 1 September 2026. The amendments to the Fifth and Eighth Schedules of the VAT Law will change the way the VAT treatment of buildings is determined and introduce corresponding changes to the rules concerning the reduced VAT rate applicable to certain renovation and repair works.<\/p>\n
Most notably, the existing five-year criterion for determining the VAT treatment of supplies of buildings will be abolished. In its place, the new regime will focus on first occupation and systematic use.<\/p>\n
For property owners, developers and purchasers, this represents an important shift: the age of a property will no longer be the decisive factor; its history of actual use will become increasingly important.<\/p>\n
At a glance: what is changing? <\/strong><\/p>\n Until 31 August 2026: the VAT treatment of a completed building is largely determined by the five-year period from completion, together with the existing condition concerning actual use by a non-related person for at least 24 months.<\/p>\n From 1 September 2026: the five-year criterion will disappear. The focus will instead be on whether the building has reached first occupation, with \u201cfirst use\u201d referring to systematic use or exploitation for at least 18 months.<\/p>\n This is therefore a move from a time-based test to a use-based test.<\/p>\n The current regime: why five years matters <\/strong><\/p>\n Under the Eighth Schedule as it currently stands, the supply of a completed building is subject to VAT where the first or subsequent supply takes place within five years from completion, provided that the building has not been actually used by a non-related person for at least 24 months.<\/p>\n Once the five-year period has elapsed, the supply will generally fall within the exemption applicable to immovable property, subject to the applicable VAT rules and the status of the supplier.<\/p>\n The current regime therefore creates a relatively straightforward time-based question: how long ago was the building completed, and has the relevant actual-use condition been satisfied?<\/p>\n However, from 1 September the approach will change substantially.<\/p>\n From five years to first occupation<\/strong><\/p>\n The Value Added Tax (Amendment of the Eighth Schedule) Order of 2026 abolishes the five-year criterion.<\/p>\n From 1 September 2026, VAT will apply to the transfer of buildings or parts thereof, together with the relevant land or an undivided ideal share therein, where the transfer takes place before first occupation. The amendments also cover certain transfers of possession under sale agreements, agreements providing for the future transfer of the building and land, and leases with an option to purchase.<\/p>\n The legislation introduces revised definitions of \u201cfirst occupation\u201d and \u201cfirst use\u201d.<\/p>\n \u201cFirst occupation\u201d means the first use of the building following its delivery or construction, including owner-occupation, own use, leasing or any other use which continues on a systematic basis.<\/p>\n \u201cFirst use\u201d means the use or exploitation of the building following its delivery or construction, where that use takes place systematically for a period of at least 18 months.<\/p>\n Why does this matter?<\/strong><\/p>\n Consider a property completed in 2019 which has remained completely unused.<\/p>\n Under the current regime, the fact that more than five years have elapsed may mean that a subsequent sale falls outside the relevant VAT provisions.<\/p>\n From 1 September 2026, however, the passage of five years will no longer be sufficient. If the property has never been first occupied or systematically used for the required period, its subsequent supply may still be subject to VAT.<\/p>\n The position can also work in the opposite direction. A building which has been systematically used, including through owner-occupation or leasing, may have reached first occupation even though it is less than five years old.<\/p>\n The change is therefore not simply an extension or reduction of an existing deadline. It fundamentally changes what needs to be established in order to determine the VAT treatment of a property<\/p>\n Renovations and the 5% VAT Rate<\/strong><\/p>\n The amendments are not limited to property sales.<\/p>\n The Value Added Tax (Amendment of the Fifth Schedule) Order of 2026 introduces corresponding changes relevant to the reduced 5% VAT rate applicable to qualifying renovation and repair services in respect of private residences.<\/p>\n Under the amended provisions, a private residence is considered \u201cold\u201d where at least three years have elapsed since its first occupation. The legislation also introduces the concept of \u201cfirst use\u201d, being systematic use or exploitation of the residence for at least 18 months. Importantly, the 18-month period runs concurrently with the three-year period.<\/p>\n The definition of \u201crenovation\u201d is also amended. For the relevant provisions, it includes interventions involving additions, improvements and repairs to an old private residence. In the case of paragraph 11A, the relevant works include repairs and improvements concerning the energy efficiency and\/or structural adequacy of the residence.<\/p>\n The amendments therefore have implications not only for property sales, but also for owners considering qualifying renovation and repair works.<\/p>\n What if the seller is a private individual <\/strong><\/p>\n A first or one-off sale by an individual does not automatically attract VAT. The key consideration is whether the individual is acting as a taxable person in the course of an economic activity.<\/p>\n A genuine sale of privately-held property may fall outside the scope of VAT where the individual is simply disposing of a private asset. However, the position may differ where the circumstances indicate that the individual is carrying out an economic activity, for example where the property was acquired or constructed with a view to resale or the individual has undertaken activities comparable to those of a property developer or trader.<\/p>\n Accordingly, the fact that a transaction is an individual's first sale is not, in itself, determinative. The circumstances and nature of the transaction must be considered as a whole.<\/p>\n What should property owners and purchasers consider?<\/strong><\/p>\n The abolition of the five-year rule is likely to be particularly significant for developers and property owners holding completed but unused properties.<\/p>\n From 1 September 2026, parties to relevant property transactions should consider:<\/p>\n The contractual arrangements should be considered carefully, particularly where a transaction is being negotiated or completed around 1 September 2026, given that the amended provisions expressly address certain transfers of possession and contractual arrangements.<\/p>\n The evidential position may also become more important. Where the VAT treatment depends on whether a property has been systematically used for the relevant period, parties may need to establish when and how that use occurred.<\/p>\n What does this mean in practice?<\/strong><\/p>\n The key change can be summarised simply:<\/p>\n Under the current regime, the age of the property matters. Under the new regime, what has actually happened to the property matters.<\/p>\n From 1 September 2026, a property will not simply fall outside the relevant VAT provisions because five years have passed since its completion. Instead, its first occupation and systematic use will become central to determining its VAT treatment.<\/p>\n For developers and property owners, this could materially affect the VAT consequences of holding completed but unused properties. For purchasers, the property's history of occupation and use may become an increasingly important part of the transaction. For private individuals, meanwhile, a first sale will not automatically result in VAT: the individual's status as a taxable person and whether the sale constitutes an economic activity must be considered separately.<\/p>\n The new regime therefore represents more than the abolition of a five-year deadline. It marks a broader shift towards the actual use and occupation of property as key factors in determining its VAT treatment.<\/p>\n\n