1. Imposition of 19% VAT on the letting of immovable property in Cyprus for business purposes
VAT at the rate of 19% is imposed on the leasing and/or letting of immovable property to a taxable person for the purposes of carrying on taxable activities, commencing on/ or after 13 November 2017. VAT is charged when the lessee is a taxable person and carries out at least 90% of taxable activities.
The leasing of buildings used as residences remains an exempt transaction for VAT purposes.
The lessor has the right to notify the Tax Commissioner by submitting a relevant form, to opt for the non-imposition of VAT to the lessee of the immovable property, subject to the terms and conditions specified in the relevant Notification of the Tax Commissioner.
The decision of the lessor to opt for the non-imposition of VAT is irrevocable.
2. Long-term lease of immovable property – VAT treatment
As of 1 January 2019, the long-term leasing of immovable property which essentially gives the lessee the right to sell the property as owner or the right to sell the property (transfer the risks and rewards of ownership of the immovable property) is considered a supply of good and not as a supply of service and is subject to VAT at 5% or 19% (depending on the case of the purchaser). The imposition of VAT does not cover cases where the right of the immovable property is transferred after its first occupation and is therefore not subject to VAT.
Transitional provisions apply for all cases which were completed or agreed upon before 1 January 2019 and each case must be examined separately.
3. Imposition of 19% VAT on non-developed building land
As of 2 January 2018, VAT at the rate of 19% is imposed on the transfer of non-developed building land. Specifically, VAT is imposed on the transfer of ownership, transfer of indivisible land portion, transfer of ownership under a sale agreement or an agreement that specifically provides that the ownership will be transferred on a future date or by virtue of a leasing agreement with the right to buy non-developed building land which is intended for the construction of one or more structures in the course of carrying out a business activity.
Non-developed building land includes all non-developed land plots that are intended for the construction of one or more structures. This definition includes non-developed building land that is either covered or not from the water supply and covers land plots of all types as listed below:
- Land plots under development
- Finished land plots
- Land plots with a final approval certificate
- Land plots with land title
Other types of land plots are also included in the list of non-developed building land.
The purchase of land after 2 January 2018 for the sole purpose of constructing a dwelling to be used as the principal and permanent place of residence of an individual will be subject to 5% VAT. Individuals who had initially been charged by property developers with 19% VAT for the purchase of a plot of land that was ultimately used to construct the principal and permanent residence of that individual are entitled to a refund of the 14% (the difference between the standard rate of 19% and the reduced rate of 5%) of the VAT originally paid.
VAT is not levied on the purchase or sale of land located in a livestock zone or areas not intended for development such as environmental zones/areas, archaeological and rural.
4. Repossession of real estate by financial institutions
VAT must be accounted for in accordance with the provisions of the reverse charge for transactions related to real estate transfers during the loan restructuring process and for mandatory transfer to the lender, from January 2, 2018. As of December 5, 2019, the definition of “lender Includes licensed credit and financial institutions, credit acquisition companies, including their subsidiaries, as well as a public body or any licensed company that has acquired/received from a credit institution any non-performing / overdue loans. This provision is valid until December 31, 2020
5. Imposition of the reduced VAT rate of 5% on the acquisition and/or construction of residences in Cyprus for use as the primary and permanent place of residence in Cyprus
As of 8 June 2012, the reduced rate of 5% applies to the acquisition and/or construction of Cyprus residences to be used by eligible persons (residents of Cyprus or/and other EU member states or other non-EU member states) as the primary and permanent place of residence, only after obtaining a certified confirmation from the Commissioner.
The statutory declaration may be filed at any stage at the time of construction of the Cyprus residence or in case of supply prior to the eligible person obtaining possession.
As of 18 November 2016, the reduced rate of 5% applies for the first 200 square meters of the residence’s buildable area as determined by the building coefficient (and not on the first 200 square meters of a residence that does not exceed 275 square meters as was the case up until 17 November 2016). In the case of families with more than three children, the allowable total covered area increases respectively.
Under the provisions of the law which apply as of 18 November 2016, a person who has exercised the right to purchase a Cyprus residence with a reduced rate of VAT of 5% is eligible to exercise this right again for the purposes of the purchase of another residence before 10 years have elapsed, only if:
- that person has ceased to use the residence as the primary and permanent place of residence before the period of 10 years has elapsed;
- has notified the tax department accordingly; and
- has paid the difference in the VAT between the reduced VAT rate and the standard VAT rate as applicable during the time of supply or construction of the residence.
From November 1, 2023, a reduced VAT rate of 5% applies to the first 130 square meters of the primary residence. This taxation is in effect up to a property value of €350,000, provided that the total purchase value does not exceed €475,000, and the total buildable area does not exceed 190 square meters. In simple terms, for square meters ranging from 131 to 190, a 19% VAT will be imposed. For residences with an area exceeding 190 square meters, the 19% VAT rate applies from the first square meter.
For planning permits issued before November 1, 2023, the previous regulations, as mentioned above, remain in effect.
6. Imposition of the reduced rate of 5% on the renovation and repair of private residential homes in Cyprus
The reduced rate of 5% on the renovation and repair of private residential homes in Cyprus applies to all the residential homes in Cyprus (and not only to the main and permanent place of residence applied as of 3/12/2015). The renovation and repair consist of plumbing, electrical, carpentry, painting, building, and construction work. As of 20 August 2020, it also applies to such services provided for the purposes of making additions to private residences. The reduced VAT rate of 5% applies provided at least three years have passed since the first use of the private residence. In cases where the value of the materials exceeds the total value of the supply by more than 50%, the value of the materials is subject to the standard rate VAT of 19%.
7. Sale of immovable property – Exceptions
In general, the resale of immovable property where the property has already been used for the first time is not subject to VAT
For resale buildings, which are sold under a cancellation and resale agreement, and where the property has already been used for the first time it is deemed to be a resale and therefore not subject to VAT.
As of 11 November 2022, the supply of a building is subject to VAT when supplied before its first delivery and on any subsequent deliveries within five (5) years of its completion, provided that there has been no actual use by an unrelated person for a period of at least twenty-four (24) months.
Before May 1, 2004
Generally, buildings that have been constructed or are under construction or are to be constructed in the future for which the relevant application for the issuance of planning permission was submitted before May 1, 2004, are not subject to VAT on the sale.
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