The new VAT rules on the sale of property have been in
force for over a year. However, these have yet to gain wide
acknowledgement and mistakes are often made when applying the
rules. The obligation to pay VAT should not be overlooked when
buying or selling real estate. Moreover, all notifications should
be timely submitted: mistakes may be costly. For these reasons we
will point to some of the main aspects of the new
In April 2012 amendments to the Value Added Tax Act came into
force establishing a reverse charge mechanism on taxation of real
estate for which inclusion of VAT is voluntary. VAT inclusion is
voluntary when an immovable corresponds to the following three
it does not constitute a dwelling,
it does not constitute an empty plot in sense of the
Planning Act and
it is being sold after first occupation or re-occupation.
Generally, it is an immovable occupied by a commercial building
or a production building.
When including voluntary VAT a reverse charge mechanism is
the seller does not include VAT transferrable to the state in
the purchase price but
VAT is declared and immediately deducted as input VAT by the
VAT inclusion is necessary and reasonable in situations where
costs have been incurred or investments have been made by the
seller over the past decade as regards the immovable in respect of
which the seller applies for a refund of VAT from the state. If VAT
is not included in the purchase price on sale of an immovable, the
seller will have to adjust the input VAT deducted during this
period. Previously deducted input VAT which may not be deducted as
a result of the adjustment will have to be refunded to the
When implementing the new rules, note that voluntary VAT
inclusion requires prior written notification to the Tax Authority.
The Tax Authority has not specified a separate format or set
procedures for submitting notifications. Notification in a
freely chosen format has to be sent to the Tax Authority by mail.
In practice, the Tax Authority has accepted digitally signed and
Often the seller is not aware of the obligation to notify and
the issue only arises upon preparation of a VAT declaration.
Typically real estate transactions are preceded by intense rounds
of negotiations in the midst of which notifications may simply be
overlooked. Therefore, it is not uncommon that notifications are
The law does not indicate consequences for delays. In the worst
case scenario the Tax Authority may assume that the prescribed
conditions for VAT inclusion were not fulfilled and require
adjustment of input 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.
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On 12 February 2015, following nine years' work by various
Law Commissions and working groups, and a whirlwind of activity
over recent months, the Insurance Act 2015 ("the Insurance
Act") received Royal Assent.
A recent decision of HHJ Cooke in the Chancery Division of the High Court in Kandola v Mirza Solicitors LLP  EWHC 460 (Ch) has provided some useful guidance on solicitors' duties to advise as to the risk of insolvency of the vendor when acting for purchasers in property transactions where deposits are held as agents for the vendor.
The recent Court of Appeal decision of Charalambous and another v NG and another  EWCA Civ 1604 has taken this point further and will come as unwelcome news for a number of residential landlords.
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