Cyprus 2018: Charging VAT on the Sale of Land by Individuals Conducting Economic Activities

As per the amendments to the Cyprus VAT Law N.95(I)/2000, authorities in Cyprus now imposes VAT to be charged on all sales of undeveloped building land by individuals exercising economic activities.

What constitutes economic activities?

Article 3 of the aforementioned VAT Law, precisely states business to mean any economic activity exercised independently and in any place, regardless of the intended purpose or the outcome of such activity.

It also clarifies that economic activities to extend to all the activities of:

  • A producer, merchant or supplier of services.
  • Any mining or agricultural activities.
  • The activities of freelancers or independent contractors.
  • The utilisation of a tangible or intangible good for the purpose of generating an income.

Therefore, it is obvious that the sale or exploitation of real estate can be considered as economic activity for VAT purposes, although the facts of each case will determine whether a transaction is within the meaning of economic activity or not.

Below, the position of the Cyprus VAT Authorities have been identified in three specific cases:

  1. Isolated Transactions

Isolated transactions do not amount to valid economic activity (for example the sale of inherited land by an individual every 7 to 10 years).

  1. Taxation of the relevant profits

In the determination of whether a transaction falls within the meaning of economic activity for VAT purposes, it is irrelevant whether the profits from such a transaction are subject to Income or Capital Gains Tax.

  1. Undeveloped building land as an asset of the transferor

If the land is reflected in the books of the transferor as an Asset, then by default the sale, going forward will always be subject to VAT.

Building land

The definition of building land is general and includes most types of land. It is important to clarify that exemptions apply to land located in areas such as:

  • Land used to keep and raise livestock.
  • Land intended for development zones of environmental protection.
  • Land used for archaeological or agricultural purposes.

The new law referring to undeveloped building land is effective as from the 2nd of January 2018; therefore the following supplies do not fall within the scope of this law:

  • Land transferred to the name of the buyer before January 2nd
  • Land for which the relevant Sales contract has been filed with the Land Registry or the Tax commissioner before the 2nd of January 2018.

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