In 2004, Cyprus became a member of the European Union, and one of the EUs directives was that Cyprus had to charge 19% VAT on all building land sales. The EU officials warned the government that Cyprus would be subject to being fined unless it brought the EU VAT Directive 2006 into its national law.
Cyprus was granted a temporary exemption from the directive until December 31, 2007. This allowed the government to continue not implementing the VAT directive when any plot of land was sold.
After nine years the EU warned the government that after so many years the continued non-compliance would attract huge fines. This could range anywhere between €1,000,000 to €3,000,000 per day for non-compliance.
The government finally submitted a bill to parliament in June 2016. This would implement the VAT directive into national law, but would exempt farm land, protected areas and forest land from the new tax.
According to recent reporting in the Greek language media, the European Commissioners have given their consent to Cyprus applying the Dutch model. For the imposition of VAT on the sale and purchase of land for commercial redevelopment.
Tax officers have issued a circular which defines land that will be subject to VAT as “Transfer of undeveloped buildable land which is clearly intended for the construction of one or more fixed structures.” According to the circular no VAT will be imposed on the purchase or sale of land located in a livestock zone and non-development areas, zones / areas of environmental protection, archaeological, rural, etc.
On Friday, November 3, the government finally approved and passed the bill which imposes the 19% VAT on the sale of building land. After a period of ten years this legislation now complies with the 2006 directive.
This law should have been passed by January 1, 2008, and the delays saw the European Commission constantly warning Cyprus with stiff fines. The new law will now come into force on January 2, 2018!