On November 3 2017, the Cyprus House of Representatives
approved a new VAT Law that amended the main VAT Law No. 95
(I)/2000. It was published in the Official Gazette of the
Republic of Cyprus on November 13 2017 and came into force on
January 2 2018.
The new Law introduces VAT at the standard rate for the sale
of building land and the leasing/rental of business premises as
per the conditions included in the Law. It also introduces the
reverse charge mechanism for VAT-subject supplies of land and
property under a loan restructuring/force-sale arrangement,
which will mostly impact financial institutions.
Imposition of VAT at the standard rate of 19% on building
The standard VAT rate of 19% will be imposed in all of the
- Transfer of ownership;
- Transfer of indivisible land portion;
- Transfer of ownership via contract or sale
agreement or agreement which specifically provides that the
ownership will be transferred at a future date or leasing
agreement with buyout option.
The above will apply to non-developed building land which is
intended for the construction of one or more structures in the
course of carrying out a business activity.
The meaning of 'non-developed building land' was clarified
as land that is not located in designated livestock zones or
areas which are not intended for development (such as
zones/areas under environmental protection, as well as
archaeological and agricultural protection).
Another criterion which needs to be considered is whether
the transfer of ownership of land is included in the business
activities of the transferor of the land. If not, then the
transaction is not subject to VAT of 19%.
Furthermore, it has been clarified that no VAT will be
imposed on the disposal of shares or shareholdings in
companies, resulting in transfer of ownership of related
The aforementioned provisions are effective from January 2
VAT on leasing of immovable property used for business
The leasing of immovable property, except buildings that are
used as residential dwellings, to taxable persons for taxable
business activities will be subject to VAT.
However, even in the case where the property is a warehouse
or office or shop or similar, the lessor should:
- Be a taxable person subject to VAT;
- Lease the property for the purposes of
generating taxable business activities.
A taxable person subject to VAT is defined as any person who
is or should be registered for VAT. In cases where the lessee
is purely a holding company, then there is no obligation for
the lessee to register for VAT because it does not conduct any
taxable business activities and as such no VAT is imposed on
the rental amount.
Also, at the time of concluding a lease agreement between
two parties, the lessor is obliged to request and evaluate the
proportion of taxable/non-taxable supplies of the lessee and if
the percentage of taxable supplies is less than 90%, then, the
transaction is exempt and no VAT will be imposed. This is a
one-time obligation of the lessor at the time of concluding the
lease agreement; the lessor has no further obligation to
re-evaluate the lessee's taxable supplies.
Finally, the lessor has the right – based on the
terms and conditions which will be designated by the
Commissioner of Taxation in the relevant notification
– to opt for the non-imposition of VAT on the lessee
of the immovable property. The option is irrevocable.
The provisions on leasing have immediate effect and will
apply to lease agreements concluded from November 13 2017
Introduction of reverse charge provisions on transfers
resulting from loan restructuring or forced transfer of
property to lender
Transfers under loan reorganisations or forced transfers are
normally made without any consideration by the bank to the
taxpayer. Under the new VAT Law, such transactions create a VAT
liability. However, the taxpayer clearly would not be in a
position to pay. For this reason, a new article was introduced
in the main VAT Law which stipulates that the obligation to
discharge VAT in such situations is transferred from the
taxpayer to the recipient (the bank).
The provisions apply to immovable property including land
and/or buildings which are transferred along with the land on
which they are built, provided that the transaction takes place
before the first occupation of the building.
The new reverse charge provisions came into force as of
January 2 2018 and will remain in force for a limited
timeframe, the existing cut-off date being quoted as December
As the property development and management industries are
substantial contributors to the Cyprus economy, the ripple
effects of this new amendment to the VAT Law will surely impact
many businesses and investments across the island, despite
certain aspects of the new VAT Law still needing to be ironed
out upon application.
Maria Nicolaou (firstname.lastname@example.org)
and Zoe Kokoni (email@example.com)
Tel: +357 22699222