Following much anticipation and speculation the Cyprus Parliament has enacted far reaching amendments to the Cyprus VAT Law on 3/11/2017 which impact transactions related to immovable property. The amending legislation (N157(1) of 2017) was published in the Official Gazette of the Republic of Cyprus on 13/11/2017. • A significant part of the aforementioned changes involve the imposition of VAT on the supply of land. These amendments to the Cyprus VAT Law were a condition of Cyprus’ accession to the EU in 1/5/2004 for which a derogation was secured until 31/12/2007. Their enactment brings Cyprus in line with the obligations undertaken within this scope.

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VAT on building land, leasing of
commercial immovable property
and reverse charge on
immovable property transfers in
the scope of a loan restructure.
VAT Alert
November 2017

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In brief
• Following much anticipation and speculation the Cyprus Parliament
has enacted far reaching amendments to the Cyprus VAT Law on
3/11/2017 which impact transactions related to immovable property.
The amending legislation (N157(1) of 2017) was published in the
Official Gazette of the Republic of Cyprus on 13/11/2017.
• A significant part of the aforementioned changes involve the
imposition of VAT on the supply of land. These amendments to the
Cyprus VAT Law were a condition of Cyprus’ accession to the EU in
1/5/2004 for which a derogation was secured until 31/12/2007. Their
enactment brings Cyprus in line with the obligations undertaken
within this scope.
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VAT 19% on the supply of building land
• The supply of building land will be subject to standard rate VAT of
19% from 2/1/2018.
• This applies to the transfer of ownership, transfer of indivisible land
portion or the transfer of ownership by way of a contract, agreement
for sale, agreement to transfer ownership at a future date or leasing
arrangement with an option to purchase.
• The subject matter falling within the scope of the amendments is the
transfer of undeveloped building land intended for the construction of
one or more structures where the supply is in the course of carrying
out a business activity.
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• It should be noted that the new provisions do not extend
the application of VAT to the disposal of shares in
companies whose assets comprise of immovable
property.
• The relevant provision in the aforementioned amendment
to the Cyprus VAT Law (8th Annex, new Article (1)(a)(vi))
delegates power to the Cabinet to issue regulations
governing the time of supply and the interpretation as to
the subject matter falling within the scope of VAT.
Regulations issued pursuant to this provision are however
subject to Parliamentary approval.
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• It is expected that Regulations will be enacted at a future
date and/or further guidance will be issued by the
Commissioner of Taxation, however until such time
uncertainties remain with regard to the practical
implementation of the changes. These include:
– the definition of “building land”
– the precise scope of “business activity” in relation to
occasional supplies of land
– the determination of the time of supply.
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VAT 19% on the leasing of commercial immovable
property
• The lease and/or rental of immovable property to a taxable person for
the purpose of the exercise of taxable business activity is subject to
standard rate VAT of 19%. This does not extend to the lease and/or
rental of a property which is used as a residence.
• The lessor has the right to opt-out from the imposition of VAT to the
lessee. The exercise of the option is subject to criteria which will be
issued by way of notification by the Commissioner of Taxation. Once
exercised, the option is irrevocable.
• The above provisions cover leases and/or rentals occurring at or after
13/11/2017 being the effective date of publication of the amendments in
the Official Gazette.
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• Practical implementation of the new provisions will entail
further clarifications which are required on a number of issues
and for which it is understood further guidance will be issued
by the Tax Commissioner. These may include:
– the process and evidence required to be maintained by the
lessor in determining whether their lease and/or rental
income relates to taxable activity carried out by the lessee
– the process and responsibility for monitoring any changes to
the nature of the lessees activities i.e. changes from taxable
to exempt activities, for the purpose of attributing VAT by the
lessor
– right of the lessor to recover pre-registration VAT incurred on
the acquisition of goods and services.
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Application of reverse charge on immovable property
transfers in the scope of a loan restructure
• the introduction of Article 11D to the Cyprus VAT Law extends the
application of the domestic reverse charge mechanism to
transactions involving the transfers of immovable property within the
scope of a loan restructure or forced transfer to the lender
• the amendments provide that the imposition of VAT on the supply of
immovable property before its first use which is transferred by the
borrower to the lender within the above scope is subject to the
application of the reverse charge mechanism
• these provisions will apply from 2/1/2018 and will remain in force until
31/12/2019
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How we can help
The above changes are expected to have significant
implications for persons intending to dispose of land and
persons who lease and/or rent immovable property. The
changes will also entail implications for property developers
and the property development industry.
Our dedicated VAT team is available to discuss and assist
you with the potential impact of the above changes.
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Key contacts
Nicosia
George Karavis | Tax Partner
T + 357 22600000 | E george.karavis@cy.gt.com
Constantinos Loizou | VAT Manager
T + 357 22600000 | E Constantinos.Loizou@cy.gt.com
Kyriakos Fili | VAT Manager
T +357 22600000 | E Kyriakos.Fili@cy.gt.com
Limassol
Augoustinos Papathomas
Head of Assurance and IBC Director
T + 357 25248000
E August.Papathomas@cy.gt.com
10101010