Cyprus Mail
Cyprus Property

House looks at formula to ease VAT on land sales

 

Ruling Disy and socialists Edek will jointly table a legislative proposal allowing non-payment of capital gains tax (CGT) until the end of 2018, to counterbalance the soon-to-come imposition of 19 per cent VAT on land sales for commercial property transactions.

The exemption for payment of CGT had expired on December 31, 2016.

Under the current regime, if a person buys a plot worth €200,000 and sells it for €300,000, they will pay €20,000 (20 per cent) tax for capital gains.

Meanwhile before parliament goes into summer recess, it is expected to enact an EU harmonising law placing 19 per cent VAT on building and development plots.

On acceding to the EU in 2004, Cyprus was granted a derogation from the VAT directive, allowing the island to continue exempting the supply of building land until December 31, 2007.

A government bill, submitted last June, exempts farm land, protected areas and forest land from the imposition of VAT.

Interest groups have warned the VAT will have a knock-on effect on the property market but also on banks that hold land as collateral.

At the House finance committee on Monday, MPs said they were considering inserting an amendment into the government bill to exempt from the 19 per cent VAT young couples who buy land in order to build their first home.

Rather, they would pay only 5 per cent VAT. This could be done either by paying the full 19 per cent VAT and then getting refunded the 14 per cent from the state, or paying the lower 5 per cent rate.

Currently, consumers do not pay any VAT on purchasing a land plot, but in the event they erect a house on that plot they pay 5 per cent.

By contrast, if they buy a house from a land developer they pay only 5 per cent VAT.

Upon the transposition of the EU directive into national law, consumers would pay 19 per cent for the land purchase, plus 5 per cent for building a house.

Under the government bill, the 19 per cent VAT would also apply to tax leasing/letting of immovable property for commercial purposes.

Only businesses with a VAT file would pay the 19 per cent for leasing. The rest, for example individuals or families renting an apartment, would be exempt, said committee chair Averof Neophytou (Disy) .

For its part, the government claims the new law on VAT will not overburden people as they have already been afforded tax relief through the scrapping of Immovable Property Tax last year as well as a reduction in transfer fees by 50 per cent.

Also on Monday, the finance committee continued discussion of another government bill which would empower the state’s loan commissioners to restructure, and in some cases, write off, loans previously granted by the state to individuals, communities or entities.

The amount of non-performing loans granted by the state is estimated at €77m.

It was agreed that the auditor-general would participate as an observer in the sessions of the loans commissioners deciding on restructuring or writing off such loans.

 

 

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