On the 13th of November 2017, the Cyprus House of Representatives voted a new law amending the Cyprus VAT Law N.95(I)/2000 (hereby referred to as VAT Law), which introduces VAT at the standard rate on the following supplies, harmonising thus the Cyprus VAT Law with the EU VAT Directive: 1) Sale of undeveloped building land by persons exercising economic activities.  2) Rental/lease of immovable property for business use (to lessees who will be using the property for business purposes).

It also extends the use of the reverse charge mechanism on the transfer of land and buildings (before the first use) from the borrower to the lender under a loan reorganization or forced transfer procedure.


Both the sale of land (up until the 1st of January 2018) and the rental/lease of immovable property (up until the 12th of November 2017) were specifically exempt supplies according to the eighth schedule of the VAT Law.

The sale of NEW buildings including the land they are erected on, is subject to the standard rate of VAT (currently at 19%) with the exception of contracts concluded after the 1st of October 2011 for the acquisition/construction of dwellings by qualified persons for use as their main residence for the next 10 years.


1. Building Land – Subject to 19%

As from the 2nd of January 2018, any sale of undeveloped building land, intended for the construction of one or more fixed structures is subject to VAT at the standard rate of 19%, if this is done in the course of the economic activities of the transferor.

Consequently, in order to be able to determine whether a transaction is subject or not to VAT, we need to examine whether:

  1. The transferor exercises or not economic activities and
  2. the land is considered to be undeveloped building land

1.1 Business – Economic Activities

Article 3 of the VAT Law, specifically states that “business” means the economic activity exercised independently and in any place, irrespective of the intended purpose or the outcome of such activity.

It further states that economic activities are all the activities of a producer, merchant or

the supplier of services, including also mining and farming activities, and the activities of freelancers or similar to those. The exploitation of a tangible or intangible good for the purpose of generating a continuing income can also be considered as an economic activity.

Therefore, it is obvious that the sale or exploitation of real estate can be considered as economic activity for VAT purposes, although the facts of each case will determine whether a transaction is within the meaning of economic activity or not.

Below we state the position of the Cyprus VAT Authorities in three specific cases:

  1. Isolated TransactionsIsolated transactions cannot be considered as economic activities (i.e. sale of inherited land by an individual every 7 to 10 years).
  2. Taxation of the relevant profitsIn the determination of whether a transaction falls within the meaning of economic activity for VAT purposes, it is irrelevant whether the profits from such a transaction are subject to Income or Capital Gains Tax.
  3. Undeveloped building land as asset in the books of the transferorIf the land is reflected in the books of the transferor as an Asset, then by default the sale of it, is always subject to VAT.

1.2 Building land

The definition of building land is wide and includes the majority of types of land. It is important to clarify though that land located in areas in a livestock zone or areas which are not intended for development such as areas/zones of environmental protection, archaeological or agricultural are exempted from taxation, even if such supplies are conducted by a relevant taxable person (being an already VAT registered person or a person who has the obligation for VAT registration).

The new law referring to undeveloped building land is effective as from the 2nd of January 2018, therefore, the following supplies are not within the scope of this law:

  1. Land transferred to the name of the buyer before the 2nd of January 2018 or
  2. Land for which the relevant Sales contract has been filed with the Land Registry or the Tax commissioner before the 2nd of January 2018.

2. Leasing of commercial property for business purposes subject to Standard VAT Rate of 19%

Under the new provisions, the Cyprus VAT Authorities subject the lease/rental of immovable property to a relevant taxable person in the course of its economic activities

to 19% VAT unless the building is used as dwelling.

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