The Cyprus Parliament voted in favor of imposing VAT on economic transactions regarding the sale or lease of land for economic purposes fulfilling its obligation towards the European Union by introducing the Council Directive 2006/112/EC of 28 November 2006 to Cyprus law.
The proposed provisions of2006/112/EC Directive imposes 19 per cent VAT on real estate transactions made for business purposes. In particular, the new law sets VAT at the rate of 19 per cent for the sale or lease of immovable properties for business purposes in the course of carrying out economic activities as per the provisions of the EC Directive.
Furthermore, the new VAT rate has an immediate effect on the transactions for leasing an immovable property for commercial purposes, dated from 13th November 2017 onwards. There is an option for the lessor to opt out of VAT, however this option is irrevocable and will besubject to the fulfillment of certain conditions.
The newly amended law has not yet been published in the Official Gazette of Cyprus, however, it seems that the amendments will affect transactions regarding the leasing or sellingof immovable property to a taxable person for the purpose of undertaking economic activities, with the exemption of leasing a building for private use as dwellings.
The said provisions raises a variety of questions regarding the exact interpretation of certain terms such business and/or economic activities to determine when a transfer of an immovable property falls under the amended law.
The proposed amendments in relation to the transfer of immovable property for business purposes will take effect upon their publication in the Official Gazette on the 2nd January 2018. However, it is noted thatthe provisions on leasing have immediate effect and they already apply to lease agreements which are concluded from 13thNovember 2017.
Our professionals and legal team has the experience and expertise to provide advice and assistance on all property matters relating to the new legislation.