Impending Vote for VAT on Land Sales Delayed

The vote on an EU bill to levy a 19% VAT on the development and construction on plots of land has been pushed off to September of this year. The legislation in question aims to impose a value-added tax onto the sale of land for commercial property.

Cyprus has remained unencumbered by this VAT directive since 2004, when the state first joined the EU, due to the derogation it received upon joining. However, the exemption expired on the 31st of December 2007.

Facing serious risk of being fined and the launch of infringement proceedings due to lengthy lack of compliance to this directive, Cyprus MPs were warned that they needed to pass the relevant legislation as soon as possible, preferably before their summer recess, and definitely no later than the last plenary session on the last Friday of July.

However, during the gathering of the House Finance Committee, the Attorney General’s office stated that the passage of the bill into law may still be delayed further, seeing as the European Commission hasn’t initiated infringement proceedings yet.

As per the amendment, the bill will reach the European Commission through the EU Pilot procedure, which serves as an informal dialogue between a member state and the EC in regards to non-compliance with EU regulations and precedes formal infringement proceedings.

The bill will be accompanied by a circular from the Cyprus Tax Department that will define just what type of land is to be subject to the planned 19% tax.

Specifically, the circular defines “building land” as land that is not yet developed and is clearly intended for the construction of stationary structures.

It’s also worth noting that the sale or transfer of land subject to VAT can be accomplished without a corresponding title deed.

To clarify, undeveloped land for construction purposes (whether it’s connected to utilities or not) is any plot that has no buildings upon it (in any state of development, from in-development to completed structures with a certificate of approval or title deed) located within a zone intended for residential, commercial, tourism, or industrial use. In certain circumstances, this definition also includes plots of land where development as already begun, such as areas with active plans for the construction of roads. Woodlands, farmlands and various protected areas are exempt.

At the moment, consumers in Cyprus are not obligated to pay any VAT for the act of purchasing a plot of land, but a 5% tax does apply once construction on said plot begins. Likewise, purchasing a house from a land development entity also currently results in a mere 5% VAT.

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