Property Developers Claiming Exemption from VAT

Developers claiming exemption from VAT

A number of developers are in dispute with the VAT Commissioner claiming exemption of transactions regarding the building and delivery of properties for which the relevant application for the issue of the town planning permit was submitted prior to the 1st of May 2004.

The issue is now before the Supreme Court which recently delivered a number of judgements interpreting the law and examined whether the Commissioner’s decisions to impose VAT were correct. The law provides an exemption for buildings for which a duly completed application for the issue of the town planning permit was submitted prior to the aforesaid date.

The expression “duly completed application” was interpreted as an application which satisfied all the requirements set out in the law for granting the said permit when it was submitted. What is of importance was not the application to be typically completed, but to comply with the law and regulations so that to have been approved.

An application which was not in accordance with the provisions of the law and lacked essential elements, such as a static and environmental study, the plot had no adequate access or there was no water supply, could not have been considered as a duly completed application. Therefore, it was held that an application which was submitted for a particular development but it was later changed essentially, could not be considered as duly completed.

The decision was with the Commissioner and not with the Town Planning & Housing Department, since it is him who applies the provisions of the law. In the event there was a difference of opinion between the developer and the Commissioner, the latter was obliged to carry out a proper search addressing the issue to the Town Planning authority, in order to assess the extent and the importance of the changes, of whether the development originally applied for was essentially different from the one developed.

The decision of the Commissioner on the issue to exempt or not a particular development from VAT must have been justified and reasoned, otherwise it is considered that it was taken without proper search having been conducted and therefore, it is subject to annulment by the Supreme Court. The same applies in the cases where the Commissioner did not apply to the Town Planning authority for their opinion before imposing VAT.

There are many properties built for which no VAT was imposed by the developers, because they believed that they were exempted due to the submission of the application prior to the 1st of May 2004. However, they afterwards find themselves liable to pay VAT, since the Commissioner inspected their books and decided that these properties were not exempted. Essential changes were made to the original architectural plans and the developments are different from the ones finally built.

The aforesaid phenomenon is observed because of the rapid development in the property market during that period and because of the provisions of the law, many developers submitted a lot of applications not duly completed, in order to avoid the payment of VAT.

The issue concerns not only the developers who were obliged to pay VAT on properties sold without imposing it, but also the purchasers who now will be entitled to claim the subsidy for acquiring a residence in Cyprus for the first time in their life. They will be eligible, since the application for the issue of the relevant town planning permit will be considered as having being made after the 1st of May 2004, provided of course they meet the other requirements of the law.


George Coucounis is an experienced lawyer practicing in Larnaca, Cyprus.

Educated at University College (London) and Thessaloniki University (Greece), George is fluent in English and has been practicing law in Cyprus since 1982.

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