Cyprus VAT Update - New rules for leasing of immovable properties
07 March 2019
The Cyprus Tax Authorities have issued circular 229 on 27 December 2018 which sets the new VAT rules which are applicable from 1 January 2019 in relation to VAT treatment on the effective transfer of the right to use an immovable property.
As per the new VAT provisions, the long-term leasing of immovable property which provides at the same time that the right of disposal of the property as an owner is transferred to the lessee of the property, is subject to VAT at the rate of 19% (normal VAT rate) or at the reduced rate of 5% (where the necessary conditions are met and the lessee will use the property as his main and primary place of residence). The VAT charge applies in the cases where the leased property is new.
Previously (as at 31/12/2018) in the majority of the cases the long term leasing of immovable property was exempt from VAT.
Furthermore, as it is explained in the circular, the interpretation of the definition of ‘’effective transfer of the right to dispose an immovable property’’, includes also the following cases (in addition to the free ownership concept):
- Where the person has similar rights to the free ownership rights (i.e. long-term interest on the property for 99 or 999 years) as determined in the provisions of the Immovable Property Tax Law.
- In cases of long-term leasing with a lump sum initial payment which equals to the market value of the property which is combined with a very low payment of annual rent.
- In cases of long-term leasing where in the beginning of the lease contract the current value of the minimum lease instalments covers substantially the fair value of the leased asset (i.e. at least 90% of the market value of the asset).