Cyprus must impose VAT on land sales or face fine from the EU

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Cyprus MPs continued their discussion this week regarding a government bill which would impose a 19% VAT on land sales for commercial property transactions, among concerns that this would lead to a cooling off in the Cypriot property market.
Officials warned that Cyprus is liable to hefty fines from the European Commission unless it transposes the EU VAT Directive of 2006 into national law. On acceding to the EU in 2004, Cyprus was granted a derogation from the directive, allowing the island to continue exempting the supply of building land until December 31st, 2007.

Another issue was also raised was whether incidental transactions in land can be exempted from the VAT. For instance, if a non-taxable person, who does not engage in an economic activity for VAT purposes, chooses to sell a plot of land inherited by him, would this be considered to constitute economic activity and thus subject to VAT?