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.
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