VAT on new buildings aims to reduce high tax evasion

The government yesterday submitted to Parliament a bill imposing Value Added Tax on new buildings. The aim is to crack down on widespread tax evasion in the construction business and, indirectly, to attract more investment in the sector. While the VAT is imposed on the contractors, there is concern that the cost may be passed on to property owners. Market experts said this could happen if the so-call «objective values» – property value estimated for taxation purposes, which always lags actual market value – increase over 15 percent in 2006. Economy and Finance Minister Giorgos Alogoskoufis sought yesterday to calm taxpayers, saying that the rise in objective values will only be slight. The main provisions of the legislation are the following: – Value-added tax, at the rate of 19 percent, is imposed on new buildings, whose construction permit will be issued from January 1, 2006 onward. The tax also applies to buildings whose construction permits will be revised from January 1 onward, if construction has not already begun by that date. The tax will be paid by the construction companies. – All professional construction firms pay VAT. Additionally, individuals or companies whose main activity is not building, but who engage in such an activity occasionally, or even once, are also liable for VAT. – Exempt from VAT are new buildings whose building permits will be issued from January 1, 2006 onward, provided that the application for the permit, with all supporting documents, has been submitted by November 25, 2005 (yesterday) and that an agreement with the contractor has been signed by the same date. – Buying one’s first house is still subject to a property transfer tax. – The property transfer tax will be gradually abolished, beginning January 1. Further transfers of a property are subject to a transaction fee, equal to 1 percent of the property’s objective value, to be paid by a buyer. The seller, if he or she sells the property within 25 years of its acquisition, is subject to capital gains tax. – Tax-exempt amounts for the acquisition of a first house are raised to 75,000 euros for unmarried individuals and to 115,000 for childless married couples. For the latter, this amount is raised by 23,000 euros for each of their first two children and by 35,000 for each child after that. – The tax-exempt portion of property transfer from parents to their children or from one spouse to another is raised from 20,000 to 80,000 euros. In the case of property transfer to children, the portion of the property value ranging from 80,000 to 100,000 euros is taxed at a rate half of normal. Finally, in the special case of a transfer of a land plot in exchange for one or more apartments in the apartment house to be built on the block, the construction company pays VAT of 19 percent on the difference between the objective value of the apartment(s) and the objective value of the plot.

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