VAT on land and rental of immovable property

On 29/12/2017 and on 02/01/2018 the Cyprus Income Tax offices issued the circulars EE219 and EE220 regarding the imposition of VAT on the:

  • sale of non-developed building land,
  • leasing of commercial immovable property in Cyprus.


The law for imposition of 19% VAT on the above transactions is effective from 02/01/2018.

As per the law and guidance issued from Income Tax office the main provisions of the law are as follows:


  • Sale of non-developed building land.

As per the provisions of the law any sale of non-developed building land by a person exercising “economic activity” is subject to the provisions of VAT law and VAT need to be imposed.

What is important to understand and clarify on those transactions are:

  • The type of the land. The VAT is imposed on non- developed building land. Therefore, for land that is sold and no development (i.e. construction) can be performed then this land is not subject to VAT (i.e. land outside building zone, land located in environmental zone etc.)
  • Whether a person exercises economic activity. There is no definition in the law for economic activity and each case will be examined separately from VAT authorities to assess whether a person exercises economic activity or not (i.e. sale of land that has been inherited for repayment of debts will not be considered as economic activity). Note that the examination whether the sale constitutes an economic activity will be examined for sales of land belonging to physical persons. Sales of land belonging to companies will be automatically regarded as sales from persons exercising economic activity. The type of the actual activity of the company performing the sale is irrelevant.


  • Leasing of commercial immovable property

Based on the law and circular issued from Income Tax office the leasing/renting of immovable property to persons that exercise economic activity for VAT purposes is subject to VAT.

Therefore, the new leasing/renting contracts, to persons exercising economic activity, beginning after 02/01/2018 are affected by the law and owners need to charge VAT on rentals or to notify the Income Tax office through ΤΦ1220 form that wish to take exception from imposition of VAT on their rental/leasing agreements. The choice of the owner is irrevocable for the specific lease and any new lease/rental agreement will follow the same initial choice.

For existing leasing/renting contracts, these are not affected by the changes in the law and there is no obligation to the owners even if based on the relative contracts these are automatically renewed (with increase on the rental fee).

The lessor will have the right to claim VAT on the construction/maintenance of the building. The VAT on the construction/acquisition of the building can be claimed given that there are no more than 10 years since its construction/acquisition date. Note that claim of input VAT will be performed analogically for the years that the building was rented with and without VAT (i.e. for a building that was constructed in 2010 and on 02/01/2018 enters the new regime then the part of the total VAT incurred on construction that the lessor can claim is 2/10 (2010 to 2017 – 8 years therefore remaining years only 2) and can be claimed equally in 2018 and 2019.


Assessing the impact

The new law regarding the imposition of VAT on non- developed building land will increase the cost to those individuals that were planning to buy a plot from a developer (or from a person exercising economic activity) and build their residence independently, since the VAT on land will be an additional cost to them. The option of buying a house from a developer/constructor will become more attractive since VAT charged on the finished house (that will include the cost of the land) is 5% for the first 200 sq.m. (for the first permanent residence).

The owners of immovable property, renting/leasing to persons exercising economic activity, affected by the changes in the law need to assess the impact (VAT to be claimed Vs admin costs to comply) based on the characteristics of the property that they own such as:

  • When the building was built
  • What are their current and expected future maintenance fees incurring VAT
  • What is the administration cost to comply with the VAT requirements.


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.

Our tax specialists are at your disposal should you require any further information or clarifications.