As per the amendments to the Cyprus VAT Law N.95(I)/2000, authorities in Cyprus now subject the lease or rental of any immovable property to a landlord during the course of their economic activities at the standard 19% VAT rate, unless the building is being used for habitation by the landlord or any tenants.
It is also important to note that the amendment only applies to new contracts, so any contract established after the 13th of November 2017 or later. Therefore, any contracts established before the amendment are not considered to be new contracts and therefore exempt from payment:
- Contracts with an automatic renewal clause.
- The automatic increase of rental payments within a contract.
In order to determine whether a transaction based on a new contract is included in the scope of the new legislation, the following should be observed:
- What the building will be used for (business or habitation purposes) and
- Whether the actions of the tenant are taxable.
Taxable actions are not specifically referred to in the VAT Law amendment, however can be interpreted to mean any transaction that is not exempt as detailed in the wording of the legislation or they fall outside the scope of the Cyprus VAT Law.
In order for the landlord to impose a 19% charge on a transaction, the corporate tenants must be dealing with taxable supplies. The tenant can be purported to be dealing with taxable activities only if a minimum of 90% of their activities are classed as taxable ones.
If the tenant is not already VAT registered and is not considered to be a legitimate taxable individual, then the landlord cannot impose a VAT burden as part of the rental agreement.
Consequently, on the signing of the lease/rental contract, the landlord should have written evidence verifying the taxable status of the tenants.
The landlord has the option to exempt such transactions
The default position in Cyprus is that new corporate leases are subject to the standard VAT rate. It should be noted though, that the landlord (either relevant taxable individual or not) has the option to exempt a specific property (either the entire property or a functional part of the property) from taxation and in such an event is required to notify the tax authorities accordingly.
The obligation of VAT registration
A Cyprus VAT registration threshold of €15.600 is applicable here. In order for the VAT department to effectively process the relevant VAT registration, the landlord needs to provide the rental contract giving rise to such registration.
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