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A new bill imposing Value Added Tax (VAT) on the supply of building land has been approved by the Cyprus Parliament and has come into force on the 2nd of January 2018. The bill has amended the Value Added Tax Law (95(I)/2000) (VAT Law) so that a VAT rate will be levied on transactions of undeveloped building land which are carried out after the 2nd of January 2018 for business purposes.

Until recently, the supply of land was excluded from VAT.

However, Cyprus had to comply with the EU Directive 2006/112/EC with regards to the common system of VAT. To that end, the amending VAT Law 157(I)/2017 was published in the Governmental Gazette on the 13th of November 2017 and has come into force early this year.

The amendment introduces VAT at the standard rate of 19% for the supply of undeveloped building land. The VAT is imposed in cases where the supply is intended for the erection of one or more constructions and the supply falls within the course of a person’s economic or business activities.

It is noted that the supply of land is not subject to VAT in cases where the supply is an occasional transaction. On the other hand, VAT could be levied even if the supplier is not in the business of selling land.

The amendment provides that VAT is imposed on the supply of undeveloped and buildable land including plots of land under creation or under construction, completed plots or plots with a certificate of final approval or title deed. A piece of land can be subject to VAT even if it is registered with the Lands and Surveys Department with other names such as building, residence, courtyard. Pieces of land located outside the development area for which a planning permit or/and a building permit has been obtained for a large or other type of development can be subject to VAT.

The supply of land which is located in livestock zone or in areas which are not intended for development e.g. archeological or agricultural areas or zones of environmental protection, is excluded from VAT.
Besides the type of the land, the nature of the supply as well as the number and frequency of the transactions are crucial factors to be taken into consideration to determine if the transaction will be regarded as a business activity. Nonetheless, each case is examined by the Tax Department on its own conditions. In particular, the Tax Department will examine if an economic activity is carried out systematically or as part of a profession, if it is based on recognized business practice or targets consumers for a consideration.
As per the provisions of the Section 3 of the VAT Law, the business activity is exercised independently, and in any place, irrespective of the intended purpose or result of the activity. Economic activities within the meaning of this Section are all the activities of a producer, merchant or service provider including extraction, farming or freelancing activities, as well as the exploitation of tangible or intangible assets for the purpose of generating lasting income.

If the plot of land belongs to a company, the land’s disposal will be subject to VAT, irrespective of the type of the economic activity that the company carries out.
The amendment provides that if the transfer of the land was concluded before the 2nd of January 2018 or if the Sales Agreement was lodged with the Land Registry or with the Tax Commissioner before the 2nd of January 2018, the transaction will not be subject to VAT.

The content of this article intends to provide a general guide to the subject matter. Specialist advice and tax planning should be sought on each particular case. For any further information, please contact us.

Halil İbrahim Koca

Immigration Adviser

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