The Tax Department published on the 17th of February 2021, the Implementing Guidance 11/2021 clarifying the time of supply from VAT perspective, in relation to barter transactions in the construction industry.

Barter transactions in the construction industry usually involve transfer of the whole or part of the land by the owner of the land to a person engaged in land development, which undertakes to erect buildings on the land.

In the event that the landowner transfers the entire property to a person engaged in land development and in return the land development company grants to the owner of the land a house or an apartment erected on that land, then for VAT purposes, there are two transactions:

1. The delivery of the land by the landowner to the land development company and
2. The delivery of the house, apartment, etc. by the land development company to the owner of the land which is taxable at the normal VAT rate.

A. Sale of undeveloped building land by a person exercising an economic activity

As from the 2nd of January 2018 (Ν.157(Ι)/2017), the sale of undeveloped building land (“land”) carried out by a taxable person in the course of business, is considered a taxable transaction at the Cyprus standard rate, currently being at 19%.

Therefore, as from the 2nd of January, in order to decide whether a supply of land is a taxable supply in terms of VAT, we need to establish whether the seller of the land is exercising an economic activity or not.

The present guidance clarifies that in the cases of a barter transaction where the land is sold either partly or wholly in non-monetary consideration (i.e. in exchange of goods and/or services), again the supplier/landowner needs to examine whether the transaction (concerning the supply of entire or part of the land), constitutes an economic activity for VAT purposes, and therefore there is an obligation to register for VAT purposes.

In case it is established that the transaction is an economic activity for VAT purposes, and a requirement to register with the VAT Authorities arises, the landowner has the obligation to impose 19% VAT on the sale of the land.

B. Time of supply

In view of the fact that in the barter transactions in the construction industry, the consideration for the provision of building construction services is non-monetary (transfer of land), the issued guidance provides clarifications regarding the time of supply (i.e. when VAT should be imposed) on the transfer of the land.

Based on paragraphs (2)(b), (4) & (5) of Article 9 of the Cyprus VAT Law as amended, VAT is accounted on the supply of undeveloped building land by a person carrying on an economic activity, on the earliest of the following:

• When all or part of the land plot is made available to the customer, or
• When the invoice is issued, or
• When a payment is made,

unless an invoice is issued by the seller within fourteen days from the time when all or part of the land plot is made available to the customer. In the latter case, the transaction is deemed to take place at the time the invoice is issued.

C. Time when the land is made available to the buyer

It is further clarified that the time when the land is made available to the buyer, is deemed to be the time of submission of the relevant documentation to the Department of Lands and Surveys, unless there is other evidence suggesting that the land was already made available to the buyer.

Finally, the Guidance clearly states that Circular No.105 “Barter transactions in the construction industry” issued on the 17th March 2006 is still valid, with the exception of the parts referring to the time of the supply of all, or part of the land, which is clarified in the guidance, issued on the 17th of February 2021, which we hereby analysed.

Authors

Demetra Constantinou
Partner – Accounting & VAT Department
VAT@kinanis.com 

Antonia Hadjiantoniou
Associate – Accounting & VAT Department
VAT@kinanis.com