The Cyprus parliament has passed an amendment to the VAT law imposing 19 per cent VAT on land transactions for business purposes, bringing it into line with the common EU system of VAT. When Cyprus joined the EU, it was granted a temporary derogation under article 383 of the EU VAT Directive (Council Directive 2006/112/EC of 28 November 2006) allowing it to continue to exempt the supply of building land from VAT, but this derogation expired almost 10 years ago.
The amendment law has not yet been published in the Official Gazette, but we understand that it provides for VAT to be charged on the transfer in the course of the economic activities of the transferor of undeveloped buildable land which is intended for the construction of one or more fixed structures, and the leasing or letting of immovable property to a taxable person for the purposes of undertaking taxable activities, excluding the leasing of a building used for private dwellings. A number of issues, including the definition of undeveloped building land, and what constitutes a transaction for business purposes, have yet to be determined.
The amendments with regard to the leasing or letting of immovable property will take effect as soon as the amendment law is published in the official gazette, and the other amendments will take effect on 2 January 2018.