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Who pays for the VAT on plots?

By George Mouskides

It seems that land developers and the guy on the street buying a plot of land to build a house will be asked to pay the ferryman. Where do we stand today?

The House of Representatives Finance Committee is expecting the Institute of Certified Public Accountants of Cyprus to put forward its proposals to compensate for the negative effects of the 19% VAT on plots. On Monday there was a discussion in the Parliamentary Committee and it will continue on May 29.

The government bill sent to the House Committee came as a result of pressure from the EU to bring our taxation in line with the rest of the EU.

The danger of a hefty fine for not imposing VAT on sales of plots is imminent. In view of this danger, the VAT levy is expected to be imposed through legislation within the next few weeks.

Which plots will be levied with VAT?
Whether the sale of some plots will carry a VAT surcharge will depend on who the seller is. If the seller is a citizen, selling a plot of land for the first time, there will be no VAT. If the seller of the same plot happens to be a land developer, then the VAT will be imposed. It is easily understood that this constitutes an inequality between a private seller and a land developer.

This inequality is carried over to a married couple, who, let’s say, buy a plot of land to build their primary residence or a holiday house. They will be called to pay the 19% VAT and will not be able to claim it back.

Those buying a flat or a house from land-developing companies will not be affected by the new measure. This is because VAT has been imposed on the sales price of built property since 2004. It is expected that the introduction of VAT on plots will not affect the prices of flats and houses sold by developers.

Possible compensations
It is still early to speculate which measures will be implemented to compensate for the introduction of VAT. Rumours range from the abolition of transfer fees for plots, if levied with VAT, to a 0% capital gains tax, extending to a reduced 5% VAT for plots used to build the primary residence.

Another measure would be to impose VAT on the rental of commercial properties, so that investors developing these properties for rental purposes can reclaim the VAT paid for the plot, as well as the construction costs.

We will all have to wait for a few weeks to find out what the final arrangements will be.

As a word of warning, to those planning to buy a plot soon: our advice is that it would be wrong to delay their decision until after the new taxation is introduced.

The writer is General Manager of FOX Smart Estate Agency and Chairman of the Cyprus Association of Property Owners

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