Who pays for the VAT on plots?

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. The discussion will continue in the parliamentary committee this week.
The government bill sent to the House came as a result of pressure from the EU to bring our taxation in line with the rest of Europe. 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, let’s say, who buys a plot of land to build their primary home 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 had been imposed on the sale price 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 built the primary residence. Another measure would be to impose VAT on commercial properties’ rents 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: my advice is that it would be wrong to delay their decision until after the new taxation is introduced.