Imposition of VAT on the leasing and/or rental of immovable property for use as business premises.

On 2nd January this year, the Tax Department has issued the interpretative circular 220-VAT, regarding the law 157(1)/2017 on leasing/rental of immovable property and put in effect from 13/11/2017, the date published in the official gazette of the Republic of Cyprus.

The circular gives a basic interpretation of the provisions of the law and illustrative examples for its application.

The main clarifications contained in the circular can be summarized as follows:

  • Leasing/tenancy agreements that should be subject to VAT at the normal rate (19%). All of the following conditions shall be applied:

  1. To be signed on or after 13/11/2017. It does not include agreements containing automatic possibility for extension or renewal at a date after 13/11/2017, but the original one was signed before that mentioned date.

  2. Refers to immovable property leased or rented out for use in taxable business activities of the lessee/tenant who should be a person subject to VAT taxation

  3. Not to be leased/rented out for use as a residential house

  4. The lessor/landlord not to exercise his right to elect (This election is made once and for all), not to be subjected to VAT. This right is eligible only under the terms and conditions that should be published in the official gazette (KDP 423/17) and on the condition that the Commissioner is properly informed by completing the form TD 220


  • The lessee. In order for the lessee/tenant to be registered with the VAT and for the lease/rent to be considered as taxable transaction, the following conditions shall be met:

  1. The lessee/tenant shall be a person subject to VAT that carries out taxable activities for VAT purposes (excludes the exempted or activities out of the scope of VAT-except for those which does not confer the right for deduction of VAT on input)

  2. The taxable activities of the lessee/tenant shall be at least the 90% of his/her total output


  • Other clarifications


- The lessor/landlord confers the obligation to select from the lessee/tenant all the necessary documents or a confirmation in relation to the nature of its activities, but he/she has no obligation to follow up the nature of the lessee’s transactions

- A proper allocation of the VAT input to taxable and exempted activities shall be made from the lessee/tenant for the purpose of claiming deduction

- Obligation to register has also any economic owner of the property (sub-lessor, the person having the right to exploit and lease or rent the property etc), under the same provisions as with the legal owner

- Any new owner of the immovable property, has the right to decide whether to apply for the submission of a new declaration for not imposing VAT (form TD220), irrespective of the decision of the previous owner

- There are specific rules for buildings that were constructed or acquired in a period not more than 10 years and a new lease or tenancy agreement is effected/ put in effect after the 13th of November 2017(regulations 75-79 of the KDP 314/2001 dealing with the adjustments in the deductions of tax on inputs of capital asset)

- In case the property is jointly owned by more than one person, then the registration to VAT shall be made under a partnership status


  • A number of illustrative examples covering different scenario are demonstrated in the circular.




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