VAT Treatment for Leasing of Immovable Property

On 27 December 2018, the TAX Authority has released an interpretative circular relating to the application of the amending Act with number 39(I) of 2018 which has come into force on 1 January 2019 and relates to the VAT treatment on the effective transfer of the right to use an immovable property.

From 1/1/2019, the long-term leasing of immovable property which transfers to the lessee the right to dispose the immovable property as owner or dispose the immovable property, is defined as the supply of good rather than the provision of services, and is subject to the VAT rate of 19% or 5% when the lessee is going to use the property as his main and primary place of residence.

The lease agreement not only gives possession of the apartment, but also provides additional rights which in fact mark the lessee as being the owner instead of the tenant.  One of the said rights is to be able to transfer its right to another person without the lessor’s consent.

I. VAT Rate – Time of Transaction

The amount of the tax will be determined according to the time of the transaction


  • If the lease agreement is to be agreed upon before January 1/1/2019 and X deposit is paid up and the possession is given after 1/1/2019, then the transaction time is considered to have happened before 1/1/19.  This means that neither the deposit nor the subsequent occupation is subject to VAT.
  • If the construction of a property in which 10 apartments were erected, commenced after 1/1/19 and completed after 1/1/19,  then the time of the transaction is detected after 1/1/2019, since both the agreement and the deposit follow the date of alteration. This implies that the proportional VAT rate (5% or 19%) must be attributed, firstly, to the deposit and then when the possession is given, irrespective of whether the remaining amount of € X is paid.

II. Leasing of Second-Hand Properties

The long-term leasing of immovable property, for which the right to dispose the immovable property as owner or dispose the immovable property is transferred to the lessee, is still exempt from VAT when it is transferred after the first use of the property.

III. Interpretation of the ‘effective transfer of the right to dispose immovable property’

The TAX Authority has clarified that the term ‘effective transfer of right’ includes, except of the free ownership of the immovable property, other rights that are equate to substantial and effective ownership like:

(a) Rights that equate to free ownership as determined in the Law of Immovable Property, (e.g. persons that have a long-term interest on the property for 99 or 999 years),

(b) Provision of long-term leasing when there is a lump sum payment equal to the current market value of the property, together with the annual payment of a very low rent,

(c) Provision of long-term leasing when, at the beginning of the lease, the present value of the minimum lease instalments (without taking into account the cost of any possible services provided during the lease term) covers substantially the fair value of the leased asset (e.g. 90% of the market value).