Important amendment

The Council of Ministers has recently approved the amendment of Schedule 8 of the VAT Law (95(I)/2000) regarding the conditions that must be satisfied for the imposition of VAT on the supply of immovable property. More precisely, conforming to the provisions of Κ.Δ.Π. 423/2022, effective from 11 November 2022, the supply of immovable property before first occupation no longer constitutes a criterion for the imposition of VAT. Accordingly, the supply will be subject to VAT provided that it is carried out within a predetermined time frame and subject to certain conditions.

Specifically, in accordance with the provisions of Κ.Δ.Π. 423/2022, Schedule 8 of the VAT Law (95(I)/2000) has been revised as follows:

a) by replacing at the end of subparagraphs (i) and (ii) of paragraph 1(b), the phrase "before first occupation" with the phrase "before the first supply within a period of five (5) years from its completion and any subsequent supplies, within the period of those five (5) years, provided that no actual use has occurred by a non-related party; for a period of at least twenty-four (24) months."

b) By replacing paragraph 3 with the following new paragraph 3:

"3. For the purposes of this Law,

a)  completion means the building is completed, so that it can be used for its intended purpose.

b)  actual use means its use on a continuous basis.

c)  a related party has the meaning as set out in paragraph 1(4) of Schedule 4 of this Law."

Application up to 10 November 2022

The supply of buildings was subject to VAT provided it occurred prior to their first use, by any means, following their construction, including self-occupancy, own use, rental or any other use.

If the supply was effected after their first occupancy, then, in line with the abovementioned conditions, the transaction was treated as exempt from VAT. Accordingly, output VAT was not imposed on the value of the supply.  

Application as from 11 November 2022

Pursuant to the provisions of Κ.Δ.Π. 423/2022, output VAT should be imposed on the supply of immovable property in the following circumstances:

a) On the first supply of a building within a period of five (5) years since its completion.

b) In cases of succeeding supplies of the same building taking place after the first supply within five (5) years since its completion.

An essential condition in both of the above cases is that the specific building has not been used on a continuous basis by a non-related party for a period of at least 24 months.

Any supply of a completed building beyond the period of five (5) years will be exempt from VAT regardless of whether it has been used or not. 

We would like to emphasize that Κ.Δ.Π. 423/2022 makes no reference to transitional provisions.  

We expect that the aforementioned amendment of Schedule 8 will have a significant impact in the construction industry. Therefore, we are looking forward with great interest to the guidelines to be released by the Tax Authorities.

Should you like to further discuss the content and potential impact of the above proposal, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.