On 27/12/2018, the Cyprus Tax Authorities published a circular which come into force on 1 January 2019 and relates to VAT treatment on the ‘’effective transfer of the right to use’’ an immovable property.
The long-term leasing of immovable property, for which the right to dispose the immovable property as owner or dispose the immovable property is transferred to the lessee, is subject to VAT at the rate of 19% or at the rate of 5% when the lessee will use the property as his main and primary place of residence.
Interpretation of the ‘effective transfer of right to dispose immovable property’
The TAX Authority has clarified that the term ‘effective transfer of right’ includes, except of the free ownership of the immovable property, other rights that are equate to substantial and effective ownership like:
a. Rights that equate to free ownership as determined in the Law of Immovable Property, (e.g. persons that has a long-term interest on the property for 99 or 999 years).
b. Provision of long-term leasing when there is a lump sum payment equal to the current market value of the property, together with the annual payment of a very low rent.
c. Provision of long-term leasing when, at the beginning of the lease, the present value of the minimum lease instalments (without taking into account the cost of any possible services provided during the lease term) covers substantially the fair value of the leased asset (e.g. 90% of the market value).
If one or more of the above scenarios apply, then the transaction is subject to VAT provide that the property is new.