The House of Representatives of the Republic passed the so called Land Bill on 13 November 2017. According to the provisions of the Land Bill, whilst the imposition of VAT on the rentals of immovable property, is effective as of 13 November 2017, the imposition of VAT on u.b.l, is effective as of 2 January 2018.
A. Imposition of 19% VAT on real estate rentals – Main points
- Provided that the rental agreement enters into force after the commencement of the Amended Law (AL), i.e. 13/11/17, persons who lease immovable property to persons who carry out taxable transactions are obliged to impose VAT on rentals.
- The obligation ceases to exist if the lessor elects to notify the Commissioner that he does not wish to impose VAT on rentals. It should be noted, however, that if the lessor elects to notify the Commissioner that he chooses not to impose VAT on rentals, he will not be able to revoke his election in the future for that particular property. The election not to tax can be made either for the entire property or for a functional part of the property. If the property is transferred to another owner, the next owner is obligated to tax rentals or elect not to, regardless of whether the former owner exercised the option not to tax. Therefore, the non-taxation election concerns a specific property and a particular owner and does not bind the next owner.
- The opt out application must be accompanied by a signed rental agreement hence forcing the parties to also pay stamp duties on the value of the agreement.
- Since rentals are subject to VAT, the landlord is entitled to claim input tax both on the acquisition/ construction cost or other capital expenditure incurred on the property and on the non-capital expenditure relating to the rental property. The claim of VAT on acquisition/ erection or capital expenditure is based on the provisions of the Capital Goods Scheme Regulations which provide that VAT on the acquisition/construction of immovable property is adjustable over a ten year period from either the date of acquisition or the date the property was placed for the first time in use for any purpose depending on the landlord’s registration status at the time the property was constructed or purchased.
- It is noted that the obligation to charge VAT on rentals applies only to taxable persons who are registered under the normal VAT regime. Persons registered under a special regime (farmers, taxis) and intend to rent property to taxable persons may choose to: (a) register under the normal VAT regime (provided the registration threshold of €15.600 is exceeded) or (b) notify the Commissioner that they will not impose VAT on a particular property by submitting the form ΤΦ1220.
- The VAT registration obligation by landlords follows the usual registration rules. Therefore if: (a) rentals do not exceed the registration threshold, the landlord is not required to register unless he/she wants to register voluntarily (b) the tenant is not registered because it does not exceed the registration threshold, the landlord does not have to impose VAT.
In order for the landlord to establish his right or obligation to register for VAT purposes, he must submit the rental agreement to substantiate its right for registration at the time of application.
- Since rental of immovable property is considered a contiguous service, the time of accounting for VAT is the earliest of when a VAT invoice is issued or payment is made.
- The granting of a right to exploit the property by another person may possibly create an obligation for both the owner and the right-holder to charge VAT on rentals.
- If the property is co-owned by two or more people, then the co-owners are required to register as an informal partnership and submit a joint tax return.
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