CYPRUS VAT: The transfer of the right to ownership of immovable property

On the 27th day of December 2018 the Cyprus Tax Department issued a circular giving clarifications to the applicability of the Law 39(1) of 2018, which is relevant to the transfer of the actual right of immovable property disposal as owner within the scope of VAT been effected as of the 1st day of January 2019.

As a general rule, lettings of immovable property are tax exempt (with some exceptions), so the vendor cannot deduct any tax it has been charged for the development or maintenance of the said property.

Nevertheless, as of the 1st day of January 2019 in cases where there is a complete transfer of ownership rights to the tenant or enables the tenant to dispose of the property, such transaction is classified as a supply of goods (not services), thus taxable at a rate of 5% or 19% depending on the nature of the purchaser. VAT is only charged by the vendor on the first sale of the immovable property, consequently there is no VAT charge on re-sales.

The circular purports to give guidance to the following cases:

Transactions that give rise to a taxable supply

For VAT purposes when there is a transfer of ownership of the goods, this is deemed as a supply of goods. This is a matter of fact and each case should be viewed and examined on its own merits. For example, this shall apply in cases where there is a contract for the transfer of the right to sell or otherwise dispose of property, regardless of whether the vendor is the absolute owner of the property. Where there is a lease agreement whereby a large amount is been transferred as the initial payment which is equivalent to the current market value of the relevant property and a small monthly or annual amount is been adjusted as a rent, such transaction may be deemed as a supply of goods

The general rule currently followed by the tax office is that for commercial leases for less than thirty years with normal rental provisions will not fall under the transfer of ownership rights, hence neither under the supply of goods.

Place of the Transaction

The place of the transaction is where the actual immovable property situated.

Time of the Transaction

This is when the goods are made available to the acquirer or when the invoice is issued or payment is received (if prior). The timing of the transfer is deemed to occur on the date which the contract for the sale of the immovable property is executed.

If the time of the transaction is on the 31 December 2018 or prior, then the transaction will be exempt from VAT.