What is the Government Mitigating the New VAT Charges on Land sales in Cyprus?

What is the Government Mitigating the New VAT Charges on Land sales in Cyprus?

The EU is putting pressure on the Cyprus government to introduce VAT (currently at 19%) on all building and development land sales in Cyprus, or be liable to face hefty fines from the European Commission unless it implements the EU VAT Directive of 2006 into national law.

Experts have voiced their concern that this will have a negative effect on the real estate market which has recently been showing figures of a stable growth after a long period of decline. Adding VAT to land sales will essentially mean that all land in Cyprus will be 20% more expensive going forward, having a knock on effect on the property market but also on banks that are holding any land as collateral.

The Cyprus government is working to counterbalance these charges to keep prices competitive within the housing market by using the following measures:

• Abolish property taxes from 2017.
• A 50% reduction of transfer fees.

The enforced regulation has been pending implementation for several years now however the government has always succeeded to petition its postponement. There is no expectation that any new commercial developments will be affected in terms of demand, as Developers generally have to pay VAT due to Capital Gains, so it is a charge that they can discount.

Officials have found numerous issues with the current scheme as follows:

• Varying costs for the same plot of land, should two adjacent properties be sold by a private individual or a Property Developer.
• Unclear terms of what constitutes building plots.
• More clarity needs to be given to the issue of charging VAT on commercial rents or situations where payment of CGT would apply.

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