There a different areas to cover when discussing about Cyprus immovable property and VAT. We have selected a range of topics and have analysed them below:
1. Long-term lease of immovable property – As of 01 January 2019, when it comes to the VAT treatment of a long-term lease, which fundamentally provides the lessee with the right to sell the property as an owner (risks and rewards have been transferred), then this is considered to be a supply of goods and not a supply of a services. This transaction will be subject at 5% or 19% VAT depending on the case of the purchaser.
Exemption: Imposition of VAT does not apply in the situations where the rights to the immovable property are transferred after the occupation of the property.
2. 19% VAT on non-developed building land – VAT of 19% is imposed on:
- Transfer of non-developed building land;
- Transfer of indivisible land portion;
- Transfer of ownership under a sales agreement or an agreement that states that ownership will be transferred at a future date
- Transfer by virtue of a leasing agreement with right to buy non-developed building land with the intention to develop one or more structures;
Definition: Non-developed building land refers to land plots that are planned for the construction of one or more structures. Examples are land plots under development, finished land plots, land plots with land title and land plots with final approval certificate.
Exemption: No VAT Is imposed on transactions for land that is located in areas that are not intended for development such as environmentally protected areas, archaeological and agricultural areas.
VAT at a rate of 19% is charged on the sale of non-developed building land as of 02 January 2018. However if the purpose for purchasing the land is to build a permanent place of residence, then VAT rate imposed is the reduced rate of 5%. If an individual initially purchased land from a developer and was charged at 19% VAT they can claim a refund of 14%, assuming the plot of land will be used to build a permanent residence.
3. 19% VAT on the lease of immovable property in Cyprus for business purposes – VAT rate of 19% is imposed on the lease of immovable property if the below two criteria are met:
- Lease to a taxable person;
- Purpose of lease is to carry out taxable activities;
Exemption: Leasing of buildings for the intention of residency is considered an exempt transaction for VAT. The lessor has the right to notify the VAT commissioner of their decision not to impose VAT to the lessee on the specific property, subject to terms and conditions of the relevant Notification of the Tax Commissioner. This option is irrevocable.
4. Imposition of reduced rate of 5% on repairs and renovations made to private resident homes – A reduced rate of 5% applies to repairs and renovations made on private residential houses in Cyprus. Renovations include the following:
- Building and construction work;
As of 20 August 2020, reduced rate also applies to services provided for any additions made to private residences. It is important to mention that this reduced rate applies to work performed at least three years after the first use of the private residence.
Exemption: If the value of material used constitute more than 50% of the value of services then the value of materials will be subject to the standard VAT rate of 19%.
Renovation and repairs made to old private residences which are used as the place of residence of vulnerable groups and which are located at remote access areas will also be subject to a reduced rate of 5%.
5. Exemptions during sale of immovable property – Generally speaking, resale of immovable property that has already been used is not subject to VAT. However as of 11 November 2022, if a building is sold or transferred for the first time within 5 years of its completion date, then this building falls under the new building category. Any sales or transfers made within 5 years of completion date will be considered a sale or transfer of a new building, provided that there was no actual use by an unrelated person for a period of at least 24 months, and will be subject to VAT.
6. Reduced VAT rate of 5% on acquisition and/or construction of Cyprus primary and permanent place of residency
History: As of 8 June 2012, reduced rate of 5% was imposed on the construction and/or acquisition of Cyprus residences that would be used as primary and permanent place of residence following the approval and confirmation of the Commissioner.
As of 18 November 2016, reduced rate of 5% applied for the first 200 square meters of a residence that did not exceed 275 square meters.
In addition to the above, previously an individual that has already used their right to acquire a residence with a reduced VAT rate of 5% may exercise their right again, before the 10 years expired provided that:
- The residence ceased to be used as a primary place before expiration of 10 years;
- The Commissioner had been notified;
- Difference in VAT between the standard rate and the reduced rate was paid applicable at the time of the acquisition or construction of the residence irrespective of the period for which property was used as primary and permanent residence.
New rules: On 8 June 2023 a new provision of VAT law was passed at the House of Representatives. As of 1 November 2023, a reduced VAT rate of 5% applies only to the first 130 square meters of the primary residence and up to a total property value of €350,000. Reduced rate will only be applied assuming the total buildable area of the residence does not exceed 190 square meters and total purchase value does not exceed €475,000.
Exemption: Individuals with disabilities can apply for the reduced rate of 5% on the first 190 square meters of buildable area, irrespective of the total buildable area of the property.
The new law also amends the conditions under which an individual can re-apply for 5% reduced VAT rate on another property during the 10 year period. Provisions are listed below:
- Commissioner is noticed 30 days from the date that individual ceased to use it as a place of residence;
- Difference between amount of reduced rate and standard rate VAT is paid attributable to the remaining period of 10 years that the property will not be used a main and primary place of residence;
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