Try the new FT.com

June 10, 2011 5:20 pm

Am I due VAT refunds from holiday homes?

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

I own furnished holiday lets in Portugal and southern Cyprus and
have a tax question. The sales contract for my Cypriot property showed the purchase price as being inclusive of value added tax (VAT). Given that my sole purpose in acquiring this property
was to run a business providing furnished accommodation for tourists, I’m wondering now whether I can recover back the VAT element within the purchase price. I’ve heard anecdotal evidence that this is possible for non-residents of Cyprus, but I’m unsure of the process.

If this is viable, does it follow that I could pursue the same line of VAT recovery with my Portuguese property, which is also let out to tourists?

Stephen Coleclough, tax partner at PwC, says the purchase of property with the aim of running it as a holiday let business anywhere in the European Union will usually attract local VAT.

However, the purchase of a residential property to be used by the owner of the property will be exempt from VAT. In Cyprus, there is also a VAT grant scheme for newly-constructed residential buildings, but it sounds as though this is unlikely to apply in your circumstances.

If your taxable income is above €15,600 a year, you will need to register for VAT in Cyprus but it is also possible to register for it voluntarily if your taxable income from the property is expected to come in below this. When registered, you will need to charge Cypriot VAT on any rental income coming in from the supply of holiday accommodation to customers, at the rate of 15 per cent. There is no need to have a business in Cyprus to register.

If you do register for VAT in Cyprus, you will be entitled to recover the full amount of this tax incurred in the purchase of the property. You should ensure that you obtain a VAT invoice for the purchase of the property, which the seller is obliged to provide you with if VAT was charged.

In Cyprus, if the amount of VAT you have incurred on purchases exceeds the VAT that you charge on your sales, the excess is rolled forwards against your future VAT liability. However, where the excess VAT incurred is an amount that has been incurred on capital assets, the excess VAT can be recovered.

The same treatment will also apply for properties in Portugal. If you are making supplies of holiday accommodation from a Portuguese property, you will be entitled to register for VAT here. This would again allow you to recover the VAT incurred that relates to your supply of holiday accommodation. The Portuguese VAT registration threshold is €10,000, but if your supplies are below €10,000 you will still need to register, although there is an exemption that can apply.

The main issue to consider is private use by you – for example, if you or your family use the property at any time during the year without paying rent.

If you do use the holiday accommodation for yourself or your family, you would need to restrict your recovery of VAT on the purchase price because part of the price paid would relate to your private use.

Alternatively, you could always issue an invoice to yourself and pay VAT upon this supply of holiday accommodation to yourself!

Related Topics

Copyright The Financial Times Limited 2017. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE