VAT on sales of newly built properties under a sale & lease-back contract with a financial leasing company
In accordance with Article 6 paras. 1, 3 and 4 of Law 2859/2000 (“VAT Code”), , the transfer of completed or unfinished buildings or parts thereof and the land transferred with them as a single property or ideal shares of land to which the presumption of completion applies, is subject to VAT, if it is carried out for a consideration, before the first installation in them.
Buildings shall be deemed to be buildings in general and structures of any kind attached to the buildings or to the ground in a fixed and permanent manner. The first installation is defined as the first use of the buildings in any way after their construction, such as owner-occupation, self-use , leasing or other use.
The imposition of VAT applies to newly built properties, i.e. properties whose construction permit is issued or revised on or after 1 January 2006, provided that the construction work has not started by the date of revision of the construction permit.
Transfers of real estate subject to VAT are not subject to real estate transfer tax (RETT).
Furthermore, according to Article 6 par. 4a of the VAT Code, at the request of the taxable person, being a constructor of buildings for sale, the imposition of VAT on real estate is suspended, compulsorily until 31.12.2024, and RETT is imposed instead. The suspension applies to all the unused real estate of the taxable person. Together with the application, the taxable person shall submit a list of the unused properties and the amount of tax to be settled that corresponds to each property.
In view of the above, the sale by a business of a newly built property under a sale and lease-back agreement will be subject to VAT under the following conditions:
- It qualifies as a newly constructed immovable property within the meaning of the relevant provisions of the VAT Code
- The transfer is effected for a consideration, by a taxable person subject to the standard VAT regime, whose business is the construction of immovable property for sale. Indeed, by Circulars POL.1083/2006 and E.2006 /2020, it has been clarified that in the event that a legal person of a profit-making nature, with any type of activity, commissions another contracting company to build a building or erects a building itself on land it holds as a fixed asset, with a view to transferring the properties, it must declare this parallel activity (construction and sale) to the Registry Department of its tax office, since this legal person, by law, is in any case engaged in commercial activity and can never operate as a private individual. The purpose of the transfer of the properties by the legal person is proven by the result. Consequently, a business with any activity, e.g. commercial, service provider, etc., which constructs a property with the (initial) intention of using it in a way other than sale (e.g. lease, use as a headquarters or branch, tourist accommodation, etc.) but eventually sells it without having used it beforehand, is liable for VAT on this transaction (sale of the property) and has all the obligations of construction businesses.
- The transfer takes place before the first installation in the property (i.e. before it is used in any way).
- The selling company has not submitted a VAT suspension application that includes the property in question.
It should also be noted that there is no VAT exemption provided by law (either the VAT Code or Law 1665/1986 for financial leasing companies) with regard to the purchase by leasing companies of newly built properties subject to VAT.
In the event of a sale of the property with VAT, the selling company will have a full right to deduct and/or be refunded the VAT charged on the construction costs of the property, in accordance with the general principles of the right of deduction and/or refund laid down in Articles 30 and 34 of the VAT Code, taking into account the limitation period provisions.
It should be noted that the provisions of Article 33 on capital goods and the settlement/monitoring of the VAT on construction that has been deducted/refunded will not apply, as the property sold will constitute a commodity (and not a fixed asset/capital good) for the selling company in accordance with the above-mentioned clarifications provided by Circulars POL.1083/2006 and E.2006/2020.
Consequently, the seller’s right to deduct the VAT on the construction of the property or to claim a refund is secured by the sale of the property with VAT and is not dependent on any other condition.
For the purchaser-financial leasing company, the deduction and/or refund of the VAT on the purchase of the property will depend on the further use of the property in an activity subject to VAT with a right to deduct input VAT, which in the context of this sale & lease-back transaction consists of the financial leasing of the property with VAT following a relevant tax election request.
* The information is accurate to the best of our knowledge as at the time of writing. We have no obligation to update it. We accept no responsibility against any third party who is not a client of the firm and has not signed the terms of our engagement.