VAT Provisions on Immovable Property
A. New VAT provisions
The Cyprus House of Representatives passed a Bill which amended Law N.95(i)/2000, imposing Value-Added Tax (VAT) on immovable property to ensure compliance with the EU VAT Directive 2006/112/EC.
1. Activities regarding the lease of an immovable property for business use:
As per the new provisions, any lease of an immovable property to a taxable person within the scope of exercising a business activity attracts the VAT rate of 19%. However, this rate does not apply to an immovable property which it is used solely for residential purposes. This provision is not applicable to the rental agreements or leases which commenced on or after the 13th of November 2017.
2. The sale of an underdeveloped land for construction purposes:
The activity of leasing commercial immovable properties to taxable individuals for construction purposes which fall within the scope of their business activities the VAT rate of 19% applies. However, the applicable rate of 19% VAT does not apply to the lease of immovable properties that are made solely for residential purposes. In such case, the lessor subject to certain conditions has the right to choose not to charge VAT, provided that he will so notify the Tax Commissioner.
B. The reduced VAT rate of 5%
The reduced VAT rate of 5% on immovable property has been introduced to national VAT legislation on the 8th of June 2012. The reduced VAT rate of 5%, shall be applicable for the acquisition of a new residential property. The reduced VAT rate of 5% is applied on the first 200 square meters (building coefficient) of the property as per the architectural plans submitted to the Cyprus Tax Authorities. In respect of the remaining square meters of the immovable property, the standard rate of 19% is imposed. For the reduced rate to be in effect, the following requirements must be fulfilled:
The immovable property must be used as the primary and permanent residence of the applicant (for the next ten years);
The applicant has not acquired any other immovable property in Cyprus with a reduced VAT rate;
The applicant must be an individual, over 18 years old, thus legal entities are excluded.
How MPC can assist?
Advise on the newly amended VAT provisions in respect of the acquisition of immovable property;
Liaise with the Tax Authorities to satisfy the compliance with the newly implemented VAT provisions;
Assist with the acquisition of an immovable property and advise on VAT implications.