The latest situation with VAT

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
17/04/2008 15:55

At the time of transfer of title deeds the buyer pays the 3% transfer tax to the DLO. Usually they give you a piece of paper and you go and pay it to a bank and bring back the receipt. You also have to pay 1% of the 3% as property tax but I am not sure exactly who pays it to whom.



The builder has to pay 6.25% "Stoppage" tax to the tax office and submit the receipt to DLO before transfer takes place. This is not a new tax but an advance payment towards the builders income tax. The buyer must never ever pay this tax but I know of occasions where this tax has been included in the contract.



5% KDV (VAT) is a very contentious issue. Until recently the vendor used to write an invoice for the sale of the house when ready to transfer the title deeds and thus pay the "stoppage" accordingly. Next month he would pay the 5% VAT on the invoice less the vat he already paid for obtaining materials and services. The Buyer would pay the VAT to the Vendor just before getting the title deeds.



Now the situation is very volatile. There are many finished houses but few transfer of title deeds, hence sale not finalized as far as the tax man was concerned and thus many builders had spent much more on VAT than what they collected from the sales. The building industry is not very healthy at the moment and thus they wanted the government to pay them the VAT owed to them. In response the tax Directorate have issued a directive saying that sale took place when keys were presented to the buyers and thus VAT payable. Thus the government would not owe them in VAT any longer and in fact the builders should start paying it.



The trouble is that the directive about the VAT is not based on sound legal grounds. It was based on law 47/1992, temporary paragraph 1(2) which had nothing to do with the issue in hand. Thus it is not a legally valid demand. The other argument is that according to the VAT law 47/1992, VAT is payable when goods are handed over. Of course normally ownership transfers to the buyer when they take charge of the goods but this is not the case with immovables. Ownership changes only with the transfer of title deeds and not occupation. Unless they draft an amendment to the existing law, they stand no chace of collecting the VAT on transfer of keys. This is my view.



The final position is that VAT is a matter between the builder and the tax office and the buyer is not directly involved. The tax office issues a receipt for the VAT paid by the builder but this receipt is not for the VAT of a particular house, it is a matter of ongoing calculations, VAT collected by builder and VAT paid to suppliers and only the difference is paid to the tax office. In my view buyers should pay the VAT to the builders when they get the invoice for the sale of the house and this is normally done just before the transfer of the title deeds. Indeed the "Stoppage" is paid in accordance with this invoice.

ismet

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
17/04/2008 18:13

Thanks very much Elko for that. Really appreciate your advice.

daily


Joined: 01/01/2008
Posts: 84

Message Posted:
17/04/2008 19:29

thanks a bundle elko - hope you are well

wynyardman



Joined: 15/12/2007
Posts: 4580

Message Posted:
17/04/2008 20:08

Elko,



Excellent posting, for which we all should be grateful.

Keep up the good work.

wynyardman

ronaldo


Joined: 14/11/2007
Posts: 372

Message Posted:
17/04/2008 20:21

Thanks Elko

Brilliant posting,really appreciated

Ron

stevie-d



Joined: 13/07/2007
Posts: 1420

Message Posted:
17/04/2008 20:31

Thanks Elko,

This is very informative.

stevie-d

daver


Joined: 28/08/2007
Posts: 36

Message Posted:
17/04/2008 21:23

thanks for the info much apprieciated

andysue


Joined: 12/11/2007
Posts: 891

Message Posted:
17/04/2008 23:28

thanks elko very well presented that ,makes you feel good knowing so many good people on here who know what they are talking about regards andrew

jemjem


Joined: 27/05/2007
Posts: 42

Message Posted:
17/04/2008 23:58

cheers elko thanks for your help on this matter its very good to know we have such knowledgable as you thanks bob

Barrovian1



Joined: 16/11/2007
Posts: 95

Message Posted:
18/04/2008 09:31

Hi Elco

Thanks for the info, it is a good article compiled together. Below is a letter that I recieved from our developer, any thoughts?

Dear Customer,



A new legislation relating to VAT (also known as KDV) was recently announced by the TRNC Government for all properties.



Under the new legislation, the 5% VAT is payable by the Customer to the Government via the Developer once possession of the property has been taken;



and NOT at the date of the transfer of the Title Deeds.



The amount payable is calculated based on your property purchase price as stated in your sales agreement.



If you have already taken possession you will be contacted shortly by our accounts department.



Any delay in payment will result in the Government levying a penalty, which unfortunately you will be liable for.

Bob.

Pipie


Joined: 05/01/2008
Posts: 5499

Message Posted:
18/04/2008 11:30

So when does this new law apply from could you tell me please ? and where can i find the number associated with this new law ?

Corinium


Joined: 23/03/2008
Posts: 58

Message Posted:
18/04/2008 12:13

Thank you Elko



This information you add to these forums is invaluable and helps so many many people, who would otherwise have no where else to go for a considered opinion.



Thank you again



Corinium

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
18/04/2008 13:53

Thanks everybody for your show of appreciation.



Barrovian:

Send your developer a copy my post above and ask him to let you have the number and year of this supposedly new law. Even a small size developer has about 500,000 YTL owing to them by the tax man in VAT. Thus if buyers begin to pay the VAT now, this amount will go direct to the coffers of these developers and they will have to start paying VAT only if they collect in excess of the amount owing to them. It will be a good boost of morale for them if they can collect it. So don't expect the developers to oppose the government on this count as things stand.



Pipie,

There is no new law despite of what the developers are claiming.

ismet

smudge



Joined: 07/04/2008
Posts: 160

Message Posted:
18/04/2008 14:12

Thanks for all of this advice which I have now printed off. Your advice throughout the website (and ukturk of course .... and many others....) will be invaluable as we arrive on Monday to "claim our keys" hand over the last of the dosh and do the registering etc.

We will also wait in anticipation for the conversation about the tax payment. Our solicitor is Naomi so we hope this will not be an issue.

Will let you all know in a week or so how the handover process went.



.... p.s. Kavankoy phase 1 - keep ya fingers crossed everyone .....

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
18/04/2008 14:36

That's funny, I am sure I posted messge 13 and somebody replied as msg.14 but both gone. Or am I dreaming up things?

ismet

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
18/04/2008 14:37

Now its back!!!

ismet

Pipie


Joined: 05/01/2008
Posts: 5499

Message Posted:
18/04/2008 15:12

Thankyou Elco .

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
19/04/2008 09:52

Just to add one more piece of info:

The builders pay 16% VAT on almost all goods and services they obtain except 8% for the locally produced products like bricks etc. Hence a 5% VAT they get from the sale of houses hardly offsets the amount they pay and therefore all the VAT they can get from the sale of houses will all go direct into the coffers of the builders and non to the tax payer because the tax man owe them more in VAT refunds than what they will ever collect.



This is the main reason why the builders would not oppose the demands of the government that the VAT on house sales is paid at the hand over of the keys. The plot thickens



Now let me answer the question that Marianne Stokes of HBPG asked the Prime Minister and never got an answer: What happens if somebody pays the VAT but later he is refused Permission to Purchase? The answer lies in the rules and regulations about VAT. It is the same if you return a defective good that you purchased from a shop and you get your money back. Whoever collected the VAT can return it and show it in his VAT accounts and I think they fill in a simple form to state this fact. The tax man does not pay it back but it is offset in the VAT accounts. So no problem there as long as the builder has the willingness and the money to pay it back.

ismet

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 14:12

Elko - just got an email from our developer asking for 5% KDV. Attached to this email was their bank details and this document which I am posting below!



"Dear Customer,



Further to the new regulation on VAT we would like to give you some useful information in order to avoid any confusion.



As in the UK, all companies are required to prepare a monthly VAT return showing the total amount of VAT collected less VAT expenditure. This provides a net total due to be paid by the company to the tax office (if there is any) There is no requirement to produce any other documentation, other than our monthly VAT return, which proves that we have paid VAT on all properties sold.



Your proof of the payment of VAT is the invoice issued by us plus the payment receipts (issued on each installment paid), which total the invoice amount.



Therefore, please note that we do not receive any paper work with a stamp on it from the tax office each and every house sale that we make.



We hope this clarifies our position for you.



Kind Regards,"



The bit that concerns me is the bit about proof of payment - is this right?

Thanks

Nicky

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
22/04/2008 14:22

Nicky,

What your developer wrote is quite correct. What he omitted is the fact that VAT is not due until they are ready to transfer the title deeds. Such a demand from the tax office is not legal but it suits the developers because the tax man owes them a lot of money in VAT and thus whatever they can collect now from the buyers will go direct to the pockets of the developers.



As the developer stated in his letter, I quote:



"This provides a net total due to be paid by the company to the tax office (if there is any)"



"IF THERE IS ANY" is the important part because they know that they will not owe any money in VAT to the tax office for a very very long time to come.

ismet

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 14:34

So should we refuse to pay it until they are ready to hand over the title deeds. How can they penalise us? And if so how much would it be?

Barrovian1



Joined: 16/11/2007
Posts: 95

Message Posted:
22/04/2008 14:38

Hi Nicky



They seem to have changed there tune a bit from the letter that I recieved off them (message 10), they was going on about the government levying a penalty for none payment.



Bob.

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
22/04/2008 14:39

VAT is 5% of the contract price as shown on the invoice. Whether you pay it now or not is a personal choice and you know best how likely the developers are to act if you refuse. It is well known that developers are having a hard time and this VAT may be a life saver.

ismet

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 14:42

Bob I am not sure whether I got that about the Government levying a penalty - I wonder if this was scare tactics or true.



I really want to do the right thing but am really confused over this. I dont want to part with money and then find we wont get our title deeds. Surely our title deeds will go to our lawyer anyway wont they or is it down to the developer to hand them to us? Again not something that is done in the UK but appreciate TRNC law is different.

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 14:52

Elko thank you very much for all your advice.

jock1



Joined: 06/01/2008
Posts: 3786

Message Posted:
22/04/2008 15:09

Elko great stuff, just one last little thing

















Would you be a pal and pay my vat (lol)

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 15:17

LOL!!!! And ours too!!! And Barrovians and anyone else out there!!!!

Pipie


Joined: 05/01/2008
Posts: 5499

Message Posted:
22/04/2008 15:27

We have decided not to pay until we have sight of our deeds . We had in our contract that when PTP came through we would have our transfer forms within 14 days , as this has not come into fruition we have decided that no way are we parting with anymore money .

Barrovian1



Joined: 16/11/2007
Posts: 95

Message Posted:
22/04/2008 16:26

Nicky



I think that it was scare tactics.



elco2

When you finally get your approval for your title deeds from the Government, Military, and the police, were do the title deeds go - to the developer or to your solicitor?

Rgds

Bob.

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
22/04/2008 20:08

First of all let me assure everyone that I am ready to pay the VAT on behalf of anybody who asks for it. Another promise made Cypriot style



Now the title deeds: The order of things to happen

1. Final Approval. The authority giving the building permit carries out checks to confirm that the construction is in accordance with the permit.

2. Partition Permit. This applies for Estates and apartments.

3. Final Approval for Partition. Once this is done everything is ready for the transfer of Title Deeds.

4. Transfer of Title Deeds.



Transfer of title deeds is not really a transfer of title deeds, it is the transfer of ownership and the DLO eventually issues new title deeds to the new owners with their name on it and usually the previous owners written and crossed out.

ismet

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 20:30

Do the new title deeds get sent to your lawyer or to you personally - even if you are in the UK?

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
22/04/2008 22:11

Boredhousewife,

Either yurself or somebody on your behalf including your lawyer can collect it when ready but they never send a notice when it is ready. Somebody has to go and ask if it is ready. Usually it takes a couple of months after the transfer.

ismet

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 22:22

Thanks Elko, but where do you go to collect them - the DLO?

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
22/04/2008 22:34

DLO= District Land Office, otherwise known as District Land Registry Office i.e. Tapu.

ismet

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 22:47

Thanks Elko - so our developer can't hold them to ransom!!!!!!

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
22/04/2008 22:51

Yes he can if he is the owner of the land. Transfer of title deeds is not automatic. The owner has to sign the papers and pay his taxes before it can be tansferred.

ismet

Notsoboredhw


Joined: 15/03/2007
Posts: 1254

Message Posted:
22/04/2008 23:05

Arggghhh so really they do have us by the short and curlies and we do need to pay our KDV when they ask us too!! Damn it! Thought we could win this one but looks like we cant!!! LOL Better go and tell my husband he needs to pay more money over! You might not see me again!!! Nice knowing you all!!!!! LOL!!!!! Bang goes the lottery money!

the butler


Joined: 22/06/2007
Posts: 1958

Message Posted:
24/04/2008 09:40

Dear Ismet,



Can you advise people who have purchased from your favourite developer, who were charged their VAT on hand over of keys more than two years ago. We still haven't had parcellisation let alone seen sight of our title deeds. Is it not time the government stepped in and sorted these people out, or is all you have to do is pay to some charity and make empty promises to escape scrutiny or critisism?



AA