Property VAT legislation in Cyprus: Update

Property VAT legislation in Cyprus: Update

There has been considerable confusion over the VAT rules according to new legislation and according provisions for properties and land in Cyprus. Particularly regarding foreign residents renting and purchasing land.

Residential properties let out will not bear a VAT of +19%. Commercial properties if let after 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 renter is a VAT registered, so that he can claim the VAT back. Cyprus legislation 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”. 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%.

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 sale. There is confusion also surrounding whether a private individual sells a plot without VAT situated within an area where nearby a developer is selling similar plots with VAT, then should the VAT authorities charge the private seller VAT also?

If someone buys a plot in shares (eg a company owning the plot) no VAT is charged. As developers will generally 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% (the main residence) he will be in a more competitive position than building yourselves your home?

There is still confusion as to what is happening and the situation is not clear regarding agricultural land with the only clear exemption for certain categories (agricultural zones, Natura areas etc).