In November 2017, the Cyprus

parliament voted an important amendment to the Cyprus VAT Legislation, which

amends the main VAT Law N.95(I)/2000 concerning taxation of building land, in

order to align it with the provisions of EU VAT Directive 2006/112/EC. The

amendment has entered into force on 2 January 2018.

In November 2017, the Cyprus

parliament voted an important amendment to the Cyprus VAT Legislation, which

amends the main VAT Law N.95(I)/2000 concerning taxation of building land, in

order to align it with the provisions of EU VAT Directive 2006/112/EC. The

amendment has entered into force on 2 January 2018.

Specifically the amendments relate

to (a) the imposition of 19% VAT on the sale of building land, (b) the taxation

of new commercial immovable property leasing contracts and (c) the application

of reverse charge on transactions relating to transfers of immovable property

during the process of loan restructuring.

In relation to commercial

immovable property leasing, the rental/leasing of business premises (i.e. all

properties other than residential properties) are subject to VAT at the

standard rate of 19% when it is a B2B transaction and the recipient is engaged

in taxable activities.

As per the new legislation, the

standard VAT rate of 19% will be imposed in all of the following cases:

(i)transfer of ownership,

(ii)transfer of indivisible land

portion,

(iii)transfer of ownership via contract

or sale agreement or agreement which specifically provides that the ownership

will be transferred on a future date or leasing agreement with buyout option,

the above cases 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 Council of Ministers of Cyprus

shall have the power to designate, via relevant regulations to be approved by

Parliament, the types of land which will fall under the category of

non-developed building land, as well as the exact date which will be taken into

account for the identification of the time of supply for VAT purposes.

No VAT will be imposed on the

disposal of shares in companies, resulting in transfer of ownership of related

immovable property.

In late December and January 2018,

the Tax Department has circulated guidelines on the following topics:

Lease / Definition of Business activity

The authorities have clarified

that any lease of commercial property, that may amount to a business activity,

will be subject to VAT. Inter alia, the following criteria will be taken into

account to establish what constitutes business activity:

or constitutes professional activity which does not necessarily need to be

commercial or for;

professionally;

quantifiable on a fixed period basis;

established business procedures;

It is made clear that individuals

renting out a single property will be exempt as the new VAT additions are aimed

to professionals who pursue this sort of activities as their main business. It

is highlighted that residential properties are excluded. Existing agreements

that would be subject to VAT shall not be affected, unless terminated and new

agreements are entered into. The lessor, may choose to notify the Tax

Authorities should he is exempt from the payment of VAT for a number of reasons

that may include the lease not being a business activity and/or the lessor is

not liable to be registered for VAT purposes.

Sale of Undeveloped Land

It has been clarified that any

types of undeveloped land falling under the definition of “non-developed

buildable land” shall not be subject to VAT. Land which falls under

agricultural land, environmental protection land, land which falls out of local

town planning plans, archaeological interest land and land aimed for the development

of farming shall be exempt from the imposition of VAT irrespective of the

entity which is selling the land (i.e. whether the entity conducts in the sale

in the framework of business activities or not). Several criteria have been set

for the time of sale of the undeveloped land so that any transactions completed

or filed before the 2nd of January 2018 will be exempt.

Reverse Charge

Reverse charges are applied to

transfers when these are made within a restructuring process, loan

restructuring as well as in procedures where the property is transferred by law

to a lender. In such cases, the VAT registered individual is not under an obligation

to be subject to VAT, however the receiver of the property must pay the

corresponding tax and simultaneously have the right to claim input tax.