VAT on Land for Construction Purposes Approved at Last

During the last quarter of 2017 the Parliament of Cyprus passed the introduction of a VAT that will apply to land sold for construction purposes, with the tax coming in at 19%.

This tax has been an overdue stipulation imposed by the European Union a decade prior but has now finally cleared the House of Representatives with a grand total of 26 votes.

The bill was originally slated for approval in 2008 but was delayed, which resulted in multiple warnings and fines from the European Commission. Now that the bill has been passed, the new law will take effect on the 2nd of January 2018.

Leader of the Democratic Rally party and House Financial Committee Chairman Averof Neophytou has gone on record stating that the land tax can be recouped and that it will only actually apply to land sales initiated by businesses or individuals registered with the Cyprus VAT Service.

The Chairman also stated that the way the new tax will be setup has the potential to result in liquidity-related issues in the foreseeable future and reminded the House of Representatives about the two official warnings already issued by the European Commission to Cyprus due to the tardiness of implementing this tax.

Several members of parliament brought up concerns regarding the taxation commissioner’s free reign in categorizing real estate transactions as commercial.

The Progressive Party of Working People, as the main opponents to this arrangement, brought up the issue of newly married couples being hit by this tax when attempting to purchase land for the construction of homes, with the main argument pointing out that the bill contained no exceptions for this scenario.

Going forward, parliament will decide which land is to be categorized as underdeveloped land for construction purposes, while exempting land used for farming and various protected zones from the categorization.

As a result, VAT will now apply to the sale of all plots of land for construction purposes that contribute to Cyprus’ economic activity, while all other situations will be handled on a case-by-case basis.

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