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Law 39(I) of 2018 amended the VAT Law to make VAT chargeable on
the transfer of the effective right to dispose of real estate or
immovable property as owner. With effect from 1 January 2019 a
long-term assignment of the right of ownership of immovable
property (long-term lease), or the transfer of such a right is
deemed to be a taxable supply of goods subject to VAT at the
standard rate or at a reduced rate of 5% depending on the identity
of the purchaser.
The Cyprus Tax Department has issued a circular (EE 229 dated 27
December 2018) clarifying the application of the new provisions. It
makes clear that transactions are taxable only if they transfer
rights equivalent to a freehold interest, such as a lease for at
least 99 years where there is a large one-off payment corresponding
to the current market value of the property and only a nominal
annual rent, effectively transferring all the benefits and risks of
ownership of the property to the lessee, irrespective of whether or
not the freehold title is transferred. As a general rule, the
creation and the assignment of ordinary commercial leases (of 5, 20
or 30 years, for example) with rent reviews will not fall within
the scope of the provision.
The location of the transaction is the location of the property,
which is fixed. The time of the transaction is the time when the
goods are made available to the person acquiring them or, if
earlier, the date on which an invoice is issued or payment is
received. The transfer of the right to ownership of immovable
property is normally considered to occur when the contract for the
sale of the property is completed and does not require the formal
transfer of title to the buyer.
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.
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