VAT ON BUILDING LAND IS REDUCED TO 5% BY TAKING THE FORM OF A VAT REFUND
The Cyprus Council of Members decided to provide a VAT refund to individuals who acquired land exclusively for the construction of their primary residence in Cyprus which now qualifies for the reduced VAT rate of 5%.
The main purpose of this VAT refund is to reduce the VAT rate on the acquisition of land from 19% to 5%, matching it in this way with the VAT rate applicable for the construction of the primary residence.
In essence, the eligible individuals will be entitled to a refund on the VAT paid on the acquisition of the land, at the rate of 14% on the value of the land, leading to an effective rate of 5% (19%-5%) applied on the acquisition of the land.
The Cyprus Tax Department on an announcement released on the 25th of September 2019, stated that any individual who wishes to apply for VAT refund, should submit the relevant Application namely “Application for refund of VAT imposed on the acquisition of land for the construction of residence under the reduced VAT rate” published on the Official Gazette of the Republic No. 5183, on the 20th of September 2019.
The application can be also found in electronic form, on the website of the Tax Department (www.mof.gov.cy).
It is noted that the application should be submitted to the District Tax Office, along or after the submission of the “Application for Imposition of a reduced VAT rate for the acquisition or construction of residence”.
The VAT refund will be applicable on the acquisitions of land incurred after the 2ndof January 2018, since on that date the imposition of 19% VAT on the supply of land became forcible.
The VAT refund will be provided to the eligible applicant, only after his actual relocation to the residence.
The applicant will also need to submit a copy of a water, electricity bill, or any other documentation considered necessary for the granting of the sponsorship, evidencing that the applicant is indeed using the residence as his main and permanent place of residence.
Further guidance shall be expected:
It is perceived that the principles underlying the VAT refund scheme will be in line with the current provisions governing the eligibility for the reduced rate (5%) on the acquisition/construction of a primary residence.
It is expected that the Cyprus Tax Department will release further guidance and clarifications, addressing enquiries received from the eligible individuals.
Associate – Accounting & VAT Department
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