Cyprus: VAT On Real Estate Transactions In Cyprus In "Global Tax Weekly"


When Cyprus joined the EU, the sale of new buildings with a building permit dated after May 1, 2004, became subject to VAT. Under a temporary derogation, the sale of land (including the land component of VAT-able buildings) and the letting of real estate remained outside the scope of VAT. Although this derogation expired at the end of 2007, it was only in November 2017 that the VAT Law was amended to bring it into line with the common EU system of VAT.

Law 157(I) of 2017 provides for VAT at the standard rate of 19 percent to be charged with effect from January 2, 2018, on the supply of undeveloped land by a person exercising an economic activity and with effect from November 13, 2017 (the date of publication of the amending law) on the leasing or letting of immovable property to a taxable person for the purposes of undertaking taxable activities. Letting of buildings used for private dwellings is not subject to VAT.

The amending law left a number of issues, including the definition of undeveloped building land and what constitutes a transaction for business purposes, to be determined by secondary legislation. This has been done by means of the VAT (Determination of Undeveloped Buildable Land and Other Provisions) Regulations of 2017 (PI 441/2017) ("the 2017 Regulations").

The Tax Department has now issued Interpretative Circulars EU 219 and 220 dealing respectively with what constitutes a taxable supply of building land, and with VAT on leasing and letting of property.

Circulars EU 219 And EU 220

Circular EU 219 – supply of undeveloped land by a person exercising an economic activity

The designation of the land is a key factor in determining whether or not there is a taxable supply. According to paragraph 4 of the 2017 Regulations, land designated for agricultural use or outside an area zoned for development, or which is protected from development for environmental protection, archaeological or similar reasons, is exempt from VAT. The exemption applies regardless of the identity of the person making the supply and irrespective of the purpose for which it is made.

According to the amending law, a taxable supply occurs only in respect of transactions undertaken in the course of a person's economic activity. "One-off" transactions are not taxable.

Article 3(1) of the VAT Law uses the term "undertaking" to mean an economic activity carried out independently and in any place, irrespective of the purpose or the results of that activity. Economic activities within the meaning of article 3(1) are all activities of the producer, trader or service provider, including agricultural activities and professional or similar activities and the exploitation of any tangible or intangible property for the purpose of obtaining income from it on a continuing basis.

The Court of Justice of the European Union has occasionally been called upon to interpret what constitutes "economic activity." It has concluded that there are no rigid criteria and that determination of economic activity should be based on the facts of the particular case applied to the following questions:

  • Whether the activity is a serious or systematic occupation that goes beyond occasional speculative engagement;
  • Whether it is actively pursued on a sustained basis;
  • Whether it has measurable outcomes in value and quantity, on a quarterly or annual basis;
  • Whether it is undertaken in accordance with normal recognizable business practice;
  • Whether it is primarily concerned with making taxable supplies for consideration; and
  • Whether the activities undertaken are normally undertaken for profit.

In order to determine whether a disposal is a "one-off" disposal not subject to VAT or whether it is part of the disponor's economic activity and therefore taxable, the Tax Department will consider all these questions as a whole in order to form a comprehensive view of how the person acts, in the light of all the facts and circumstances of the case. Unless there is other evidence to suggest that a person intends to pursue an activity on an ongoing basis, an individual transaction, such as the disposal of a parcel of land, will be presumed to be a "one-off" transaction and therefore not subject to VAT. Infrequent disposals, such as the disposal of parts of an inheritance at intervals of several years, are also likely to be treated as non-taxable. However, if the transactions are regular, frequent and continue on a sustained basis, then all the transactions including the first will be subject to tax.

In deciding whether a particular disposal is a "one-off" or whether it is part of a course of economic activity, the Tax Department will disregard the issue of whether it is subject to capital gains tax.

Disposals of land by a company will be treated as in the course of its business, and therefore taxable, even though the company's main activity is not property development.

Where there is any uncertainty, the Tax Department will also consider the extent to which classifying a transaction as exempt will distort tax neutrality between traders.

The circular also makes clear that VAT is not chargeable on transactions in the course of business concluded before January 2, 2018, in which the land has been transferred under the provisions of the Transfer and Real Estate Law or a stamped sale contract has been filed with the Department of Land and Surveys for the purposes of the Sale of Real Estate (Specific Performance) Law or with the tax authorities before that date, even though part of the sale price may be payable at a later date. However, if the transfer has not been completed or the contract has not been filed, any consideration received after January 1, 2018, will be subject to VAT.

The reverse charge procedure applies to transfers of property (whether to a third party or to the lender) under a loan restructuring arrangement. Until December 31, 2019, under Law 135(I) of 2017, transferors are exempt from paying the VAT. The transferee is required to pay the relevant tax and has the right to claim the amount of input tax.

Circular EU 220 – leases and rental agreements of immovable property to a taxable person for the purposes of taxable business activity

Leases and rental agreements of immovable property to a taxable person for the purposes of taxable business activity which commence on or after November 13, 2017, are subject to VAT. Property let as a residence is not subject to VAT.

Existing lease and rental arrangements are not affected unless the existing contract is cancelled and a new agreement is concluded on or after November 13, 2017. An automatic renewal under an existing lease agreement does not create a new contract, even if it involves an automatic increase in the rent.

The lessor may be the owner of the property or any person who exploits it in any way, such as a lessee or licensee creating a sub-lease.

Where the lessor is a taxable person for VAT and the lease or rental is of the whole of a building or building complex, there is no possibility of opting out of VAT. In other cases the lessor may apply for exemption from VAT by completing the requisite form and submitting it to the Tax Department. The option may be exercised separately for each functionally independent part of the building or complex, such as individual retail units.

In order to be able to reclaim input VAT, the lessee must be a taxable person who carries out taxable transactions for VAT purposes. The term "taxable transactions" is not defined in the VAT Law, but consists of all transactions that are not categorized as exempt from VAT. The Tax Department will treat the letting as taxable if the lessee's taxable outputs account for 90 percent or more of its total outputs. Transactions which are outside the scope but which provide the right to deduct input tax will be taken into account.

The lessor is responsible for obtaining the requisite information and confirmations from the lessee regarding the nature of the transactions the lessee carries out and the extent of any non-taxable activities at the time the contract is signed. There is no obligation to monitor the lessee's transactions retrospectively to ensure that they meet the required level.

Input tax is fully deductible if all the lessee's transactions are taxable. If the lessee carries out both taxable and exempt transactions, the proportion of input tax that is deductible is calculated on the basis of the ratio of taxable and exempt transactions.

Any decision by the lessor to opt into or out of taxation cannot be changed, and will apply to any new lease or rental agreement in relation to the property as long as the ownership is unchanged. Following a change of ownership, the new owner of the property has the right to elect for exemption from VAT on any leases.

Taxpayers who are registered under special schemes, such as those for farmers and taxi drivers, must also apply for registration in the normal VAT system in respect of any property they let, unless they opt for exemption from tax. The registration threshold is EUR15,600 per year of taxable outputs.

VAT should be charged on rentals each time a rental invoice is issued or a rental payment is received, whichever occurs first.

If the owner or lessee grants the right to exploit the property to another person (e.g., by subletting), the obligations regarding VAT apply to both of them independently. If there are joint owners, they will be treated as one taxpayer.

A taxable person is entitled to deduct input VAT incurred on improvements or maintenance of the property, provided that this is evidenced by a valid VAT invoice or equivalent document.

The circular also explains the arrangements for recovery of input tax on the capital cost of properties completed more than a year before the latest amendments to the VAT Law took effect, which were previously leased or rented on a VAT-exempt basis and in respect of which a new lease is subsequently entered into. The input tax is amortized over the ten years beginning with the date the premises were first occupied, and deductible if the letting is subject to VAT. For example, in the case of a property leased on a VAT-exempt basis from the beginning of 2016, and in respect of which a new taxable lease is entered into at the beginning of 2018, eight-tenths of the input tax on the capital cost are recoverable.

A Summary Of The Current Position

Following the latest changes to the law, the situation may be summarized as follows:

  • The supply of undeveloped land on or after January 2, 2018, in the course of economic activity, as described above, is subject to VAT at the standard rate of 19 percent.
  • The supply of new buildings of all types, including the land on which they are erected, before their first use is subject to VAT at the standard rate of 19 percent.
  • Purchasers of new buildings used as a principal private residence within specified size limits can claim a partial refund of VAT, bringing the effective rate to 5 percent.
  • Renovations and repairs of private dwellings that have been in use for three years or longer are subject to VAT at the reduced rate of 5 percent, excluding materials that account for more than half the total value of the services provided (this exclusion does not apply in certain cases).
  • Rental or leasing arrangements of non-residential buildings to taxable persons for business purposes entered into on or after November 13, 2017, are subject to VAT at the standard rate of 19 percent. As described earlier, the lessor can recover the VAT on the cost of the building and the lessee can recover the input tax. Alternatively, the lessor can opt out of taxation subject to specified conditions.
  • VAT under the reverse charge mechanism applies when property is transferred from the borrower in the context of a loan restructuring arrangement or a mortgage repossession. Until December 31, 2019, the transferor is exempt from paying the VAT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Michael Kyprianou & Co LLC
Michael Kyprianou & Co LLC
Soteris Pittas & Co LLC
G. Vrikis & Associates LLC
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Michael Kyprianou & Co LLC
Michael Kyprianou & Co LLC
Soteris Pittas & Co LLC
G. Vrikis & Associates LLC
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions