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Parliament approves VAT on building land

The new bill imposing VAT on building land has been approved by parliament and will come into force on 2nd January 2018 some ten years after the deadline set by the European Union.

Cyprus parliament approves VAT on building landPARLIAMENT on Friday approved a bill imposing 19 per cent VAT on the sale of building land, fulfilling an EU condition some 10 years after the original deadline.

The bill passed with the votes of 26 MPs from DISY, DIKO, Solidarity, and the Green Party.

Eighteen MPs from AKEL, EDEK, ELAM, and one MP each from DIKO and Solidarity, voted against.

The law in question should have been passed by January 1, 2008 and delays prompted the EU Commission to warn Cyprus repeatedly with stiff fines.

The new law will come into force on January 2, 2018.

House finance committee chairman, DISY leader Averof Neophytou said VAT can be recouped and will only be imposed in cases where the land is sold by a company or businessman registered with the VAT service.

Neophytou said the new arrangement could create some short- or medium-term liquidity problems. He reminded parliament that Cyprus has already received a second official warning from the European Commission over the delay in passing the bill.

Some MPs voiced concern over the way the law would be applied by the tax commissioner who has the power to decide whether a transaction is commercial or not.

Main opposition AKEL warned about the possibility of newly-weds having to pay the tax when buying a plot to build their home.

AKEL MP Giorgos Loukaides said there was nothing in the bill ensuring it would not happen.

“We have not in any way ensured that new couples will be exempted from paying tax on their first house,” Loukaides said.

The land falling under the category of undeveloped building land will be determined by regulations passed by parliament.

Protected zones and farming land will be exempted.

VAT will be imposed on all sales of building plots taking place as part of economic activity. According to the tax commissioner, any other cases will be examined individually.

Readers' comments

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  • Richard says:

    Thanks Nigel – is the link you mention though cylaw.org? All of the documents are in Greek.

    Ed: Yes – view the site using Google Chrome, which has an in-built translator. And to translate the documents visit Google translate and upload them.

  • Hacked Off says:

    Can you remind us as to the quantum of the “hefty fine” imposed by the EU for the usual “unavoidable delay”
    Was it as hefty as the fine imposed on the Bank of Cyprus by the CCPS? 🙂

    Ed: Cyprus escaped a heavy fine from the EU. But a retroactive lump-sum fine from the EU could have been imposed for nine years of non-compliance, plus anywhere from €100,000 to €300,000 per day of continued non-compliance according to George Panteli, the finance ministry’s economic director.

    (The Bank of Cyprus was fined a paltry €170,000 by the Cyprus Consumer and Protection Service.)

  • Richard says:

    In the opinion of people who are on the island monitoring these situations – what is the likely outfall of this law?

    Do you think:

    i) It will slow new construction down?
    ii) Push prices of existing (already built) developments up?
    iii) Anything else of noteworthiness?

    I am assuming VAT will only be collected on all new transactions from 2.1.18, or will there be any retrospective claims back to 2008 if the E.U wanted this ten years ago?

    Thank you.

    Ed: The law will apply to undeveloped building land from 2nd January 2018; it will not be retrospective. We will have to wait to see what the impact will be, but see the link below ‘Imposing VAT on land sales’.

  • Christopher Solomon says:

    I own a house I built on a leasehold plot. If I buy the freehold of the plot does VAT apply to the purchase of already developed land.

    Ed: I haven’t seen the law, but it should be available soon on cylaw.org. However I understand that the Tax Department has drafted a circular to be sent to the European Commission that defines the land on which VAT is imposed as undeveloped building land that is ‘clearly intended’ for the construction of one or more fixed structures.

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