On 30\/11\/2017 the House of Representatives in Cyprus and in accordance with the EU Value Added Tax (VAT) Directive voted a new VAT Law which amends principle VAT Law N.95 (1)\/2000.\u00a0 The new bill imposing Value Added Tax (VAT) on building land was set in motion on the 2nd\u00a0of January 2018.<\/p>\n
VAT imposition on the leasing and\/or rental of business premises<\/p>\n
The new VAT provisions also apply to lease agreements which were finalised from\u00a013 November 2017 onwards,\u00a0provided that the taxable individual is renting the premises as part of his\/her taxable business activities (residential dwellings are excluded). VAT will apply at the standard rate, which is currently at 19%.<\/p>\n
The new provisions of the law provide that the lessor has the right (through an irrevocable option) to choose to opt out of VAT under certain conditions and procedures, which are still to be confirmed by the Tax Department on the issuance of a Circular.<\/p>\n
19% VAT imposition on undeveloped building land<\/p>\n
VAT is imposed in cases where there is an intention to build one (1) or more constructions as part of a business activity.\u00a0 VAT is not implemented when it is an infrequent transaction.\u00a0 Nevertheless, VAT could be charged even if the purchaser is not involved in the business of selling land.<\/p>\n
Certain criteria are considered to establish as to whether undeveloped land is viewed as furthering a business activity.\u00a0 These criteria include determining as to whether the activity is conducted regularly and is performed with the prime objective of making a profit.<\/p>\n
For example, if there is a sale of two (2) plots of undeveloped land which are undertaken several years apart as a result of an inheritance it is viewed as an isolated transaction and is not indicative of a business activity.\u00a0 Whereas for example, the sale of three (3) plots of land in 2017 and the sale of four (4) other plots of land in 2018 does not provide a strong indicator that this is not an economic activity and will be taxed.<\/p>\n
Furthermore, if several plots of land are sold for the purpose of repaying a loan, the reasons for the sales are considered irrelevant in determining as to whether this transaction is classified as an economic activity for the purpose of charging VAT. Whether the sale of real estate is subject to Income Tax or Capital Gains Tax it is not considered a criterion in determining as to whether the transaction is taxable.<\/p>\n
It should be noted that there is not any VAT imposed on land that is located in a livestock zone or area in which the intention is not to develop the land. Such areas include places that are protected environmentally, are archaeological sites or are considered agricultural zones. This exemption applies regardless of whether the seller\u2019s main business involves the development and\/or sale of land. Therefore, irrespective of why the land was sold, land in these zones are not taxable for VAT purposes.<\/p>\n
In conclusion, it is very difficult to interpret in which cases VAT is applicable either in rentals or undeveloped plots of land.\u00a0 The manner in which the European Law regarding VAT has been implemented within the Cypriot law could be viewed as unclear in its interpretation on certain issues.\u00a0 Consequently, it is very important that every individual rental and\/or sale of undeveloped plots of land is examined and the relevant advice is obtained as to whether VAT is implemented or exempted.\u00a0 The VAT Authorities will provide their opinion on the information which is supplied to them.<\/p>\n
The content of this article intends to provide a general guide to the subject matter.\u00a0 Specialist advice should be sought on each particular case.<\/p>\n
For any further information, please contact\u00a0Mr Savvas Savvides<\/a>\u00a0at\u00a0savvas.savvides@kyprianou.com<\/a>\u00a0or contact number 26930800.<\/p>\n Lawyer, Director and Partner of the Paphos Office of the Law Firm, Michael Kyprianou & Co LLC<\/p>\n","protected":false},"excerpt":{"rendered":" On 30\/11\/2017 the House of Representatives in Cyprus an 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