Cyprus Mail

Trying to understand new VAT rules

The tax office

By Antonis Loizou FRICS

We are at a loss over what the new VAT provisions are all about. We have read the law over and again and attended a lecture on the subject given by one of the international auditors, but we still cannot profess to understand fully the provisions. What we are somewhat clear about (not 100%) and a subject which may be of particular interest to foreign residents regarding rentals and land purchase is as follows:

l Residential properties let out will not bear a VAT (+19%). Commercial properties if let post 2018 will bear the VAT charge unless the landlord declares upfront that he does not wish to have this charge. No major harm done, but if VAT is charged, it is so only if the tenant is a VAT registered, so that he can claim the VAT back.

l The law refers to the exemption of residential units but there is a confusing proviso that the property is not to be placed into “an economic activity”. So, what does this mean? If a house is let as holiday/seasonal/ daily let and/or on AirBnB is this not a business activity? If our understanding is correct, VAT should be charged, increasing the rental by 19% (will this not put off prospective season tenants who are not VAT locally registered?).

l Buying a building plot will bear a 19% VAT charge if bought from a person/owner who is dealing with development/real estate business. So, two adjoining plots are for sale, one from a developer and the other from a private individual who does not do this (sale of plots) as a business, the second plot will be 19% cheaper than the first!

l There is confusion however if a private individual sells a plot without VAT situated within an area where nearby a developer is selling similar plots with VAT, then the VAT authorities might charge the private seller also with VAT for “avoidance” of unfair competition”!!

l Bearing in mind (be it not clear) that in case VAT is paid by the buyer, he will not be liable for the transfer fees (so out of the 19% charge a reduction by approximately 4% transfer fees – net cost 15%.

l If someone buys a plot in shares (eg a company owning the plot) no VAT is charged.

l Because developers will sell you a plot with 19% VAT but then they can claim it back, they will be in a more competitive position over a private individual who will pay the 19% with no refund. So if one appoints the same developer who sells you the plot to build your house with a total VAT charge of 5% (main residence) he will be in a more competitive position than building yourselves your home?

Even the consultants who gave the lecture did not seem to fully understand as they had no answers for all the questions and it will take a while, say a period of at least six to eight months, to clear the situation. The VAT authority says any enquiry should be addressed to it for clarification. Bearing in mind that governmental departments do not answer within the same day, but more likely two to three months what happens in the meantime? Will the seller hold back the property until the authorities decide? If then there is a sales contract and no VAT is charged what will the situation be if the VAT authority decides afterwards that the 19% should be charged?

Nobody knows in the end what is happening and the situation is also not clear regarding agricultural land with the only clear exemption for certain categories (agricultural zones, Natura areas etc).

Antonis Loizou & Associates Ltd – Real Estate Valuers & Estate Agents,, [email protected]

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