Further to the amending Value Added Tax (VAT) legislation,¹ on building land and immovable property leasing, the Cyprus House of Parliament and Tax Department have released Regulations and Circulars respectively, clarifying the applicability of VAT imposition on non-developed land as well as on the taxation of commercial rents.

Implementation of VAT Amendments

Building land

Transfers of non-developed building land by persons performing an economic activity are subject to 19% VAT as from 2 January 2018. Such land taxation is determined by the following factors:

• Classification of land type (subject to exemptions like agricultural-outside development zone land)
• Economic activity of seller according to general and case criteria
• Frequency of transactions
• Nature of the supply

Commercial property leasing

Property leasing, entered into as from 13 November 2017, to persons performing VATable business activities is subject to 19% VAT unless an opt-out right is exercised by the lessor. The recent Circular has clarified among other issues:

• The option for non-imposition of VAT is permanent following the mandatory submission of a declaration form within 10 days from agreement conclusion
• Renewal and rent rise clauses in existing agreements do not create new contracts subject to VAT
• easing to partially-exempt lessees performing taxable activities over 90% of their total income is subject to VAT
• Sub-leasing VAT treatment
• The potential to recover input VAT on capital goods adjustment

Business considerations

Natural and legal persons affected by the recent amendments taking steps to ensure VAT compliance with the new rules and minimize VAT leakages will need to:

• Consider whether they perform a VATable or exempt economic activity when selling building land
• Review existing and prospective leasing contracts to comply with VAT application and formulate commercially beneficial agreements
• Perform an indirect tax evaluation considering both VAT and land transfer fee implications
• Recognize the new opportunities of input VAT recovery

Implications

Affected entities should consider the following to ensure compliance with VAT obligations and simultaneously enhance the company's VAT position including:

a. Performance of a VAT cost–benefit analysis

b. Application of VAT provisions to entity circumstances

c. Contractual VAT arrangement review and structuring planning

d. Working with local tax advisors on VAT planning and compliance advisory

e. Meeting with the VAT authorities regarding VAT treatment in immovable property transactions

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ENDNOTE

¹ See EY Global Tax Alert, Cyprus amends VAT legislation on building land taxation, commercial rents and loan restructuring, dated 6 November 2017.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Cyprus Limited, Nicosia

• George Liasis, Head of Indirect Tax Services
  george.liasis@cy.ey.com
• Maria P. Raspa
  maria.raspa@cy.ey.com
• George Pitsillis
  georgios.pitsillis@cy.ey.com
• Simos Simou
  simos.simou@cy.ey.com
• Elpida Papachristodoulou
  elpida.papachristodoulou@cy.ey.com

Ernst & Young Cyprus Limited, Limassol

• Soteroula Rossidou
  soteroula.rossidou@cy.ey.com

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ATTACHMENT

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