VAT Amendments on the Supply of Buildings and Renovation of Private Dwellings
The Council of Ministers has issued two decrees — R.A.A. 102/2026 and R.A.A. 103/2026 — amending Schedules 5 and 8 of the VAT Law 95(I)/2000. The amendments introduce a new, unified definition of first occupation, replace the existing two-part test for VAT liability on building transfers, and align the qualifying conditions across both Schedules. Both changes take effect on 1 September 2026.
Key Changes at a Glance
- Single test replaces two: VAT on building sales now depends solely on whether first occupation has been achieved
- First occupation defined as 18 months of systematic use following completion or delivery
- 5-year criterion removed: a building with no systematic use remains “new” for VAT purposes indefinitely
- “Unconnected person” requirement removed: any systematic use — by any person — now counts toward the 18 months
- All transfer structures covered: ownership transfers, possession transfers, future-transfer agreements, and lease-with-option arrangements
- Schedule 5 and Schedule 8 aligned: the previous definitional mismatch between the two Schedules is corrected
- 5% reduced rate on private dwelling renovations retained, with clarified qualifying conditions
- Effective date: 1 September 2026
1. Supply of Buildings — Schedule 8 (R.A.A. 103/2026)
Current Position — Until 31 August 2026
Under the existing rules, the supply of a building is subject to VAT where two cumulative conditions are satisfied: the building is sold within five years of completion, and it has not been used by an unconnected person for a continuous period of at least 24 months. A building that satisfies either condition is treated as “used” and its supply falls outside the scope of VAT.
Position from 1 September 2026
The amended law replaces this two-part test with a single threshold: first occupation. A supply of a building will be subject to VAT only where it takes place before first occupation has been achieved.
Definition — First Occupation
First occupation means the exploitation of the building on a systematic basis for a minimum of 18 months following its completion or delivery.
In plain terms: the building must have been genuinely and regularly used for at least 18 months. Any use counts — by the owner, a connected party, a tenant, or any other person.
| Position | Test for VAT Liability |
|---|---|
| Until 31 August 2026 | Two conditions: (a) sold within 5 years of completion, and (b) not used by an unconnected person for 24+ continuous months. Use by a connected person does not count. |
| From 1 September 2026 | Single test: supply occurs before first occupation — 18 months of systematic use by any person. The 5-year criterion and the unconnected person requirement are both removed. |
Consequence 1 — Removal of the 5-Year Criterion
Material Risk for Owners of Completed Stock
- Under current rules, a building automatically becomes “used” at the five-year mark from completion — even if it has never been occupied.
- From 1 September 2026, this automatic cut-off is removed. A building that has never been systematically used remains “new” indefinitely — until 18 months of systematic use is achieved.
- Completed buildings currently treated as “used” purely because five years have elapsed may revert to “new” status from 1 September 2026, making any subsequent sale subject to VAT. This is a significant and potentially unexpected exposure for developers and investors holding older completed stock.
Consequence 2 — Removal of the “Unconnected Person” Requirement
Connected-Person Occupation Now Counts
- Under current rules, only use by an unconnected person counts toward the 24-month period. An owner or related company occupying the building does not start the clock.
- From 1 September 2026, any systematic use counts — whether by the owner, a related party, or an independent tenant.
- This cuts both ways: owner-occupiers will reach first occupation sooner, but developers who relied on connected-party occupation to keep units “new” will no longer be able to do so.
Illustrative Example
A developer completes two apartments simultaneously. One is rented to an independent tenant; the other is occupied by the developer personally. Under current rules, the rented apartment becomes “used” after 24 months, while the owner-occupied unit remains “new” until the 5-year mark from completion. From 1 September 2026, both apartments achieve first occupation after 18 months of systematic use — regardless of who occupies them.
The amended rules apply to all forms of supply, including outright ownership transfers, transfers of possession under sale agreements, future-transfer agreements, and leases incorporating a purchase option. The structure of the transaction does not affect the analysis.
Open Question — Practical Application
The law does not yet provide detailed guidance on how systematic use is assessed in practice — particularly for properties used as holiday or tourist accommodation, which may be available for use but have seasonal or partial occupancy patterns. Administrative guidance from the Tax Department will be important on this point.
2. Alignment of Schedule 5 and Schedule 8
One of the more significant technical outcomes of the amendment is the correction of a longstanding inconsistency between Schedule 5 and Schedule 8 of the VAT Law.
Under the current law, the definitions of “new” and “used” differ between the two Schedules. This produces a paradox: a building can simultaneously be treated as new under Schedule 8 — and therefore subject to VAT on sale — while being treated as used under Schedule 5 — and therefore ineligible for the 5% reduced rate. The buyer pays full VAT on the purchase but cannot claim the reduced rate on the same property.
From 1 September 2026, both Schedules adopt the same definition of first occupation, eliminating this inconsistency entirely.
3. Reduced 5% VAT Rate on Renovation of Private Dwellings — Schedule 5 (R.A.A. 102/2026)
Background
The reduced VAT rate of 5% remains available for renovation and repair works on a private dwelling. To qualify, the dwelling must satisfy an age threshold under Paragraphs 11 and 11A of Schedule 5, assessed by reference to two periods: an 18-month first-use period and a 3-year period from first occupation.
The Clarification
The amendment does not alter the qualifying periods themselves. It clarifies their relationship, resolving an ambiguity in the current law as to whether the periods ran sequentially or concurrently.
| Requirement | Before the Amendment | From 1 September 2026 |
|---|---|---|
| First-use period | At least 18 months of occupation — relationship to the 3-year period was unclear | Expressly stated to form part of, and run concurrently within, the 3-year period |
| Age of dwelling | At least 3 years from first occupation — unclear if this ran separately | At least 3 years from first occupation — 18-month period is contained within this window |
| Practical effect | Potential ambiguity — could be read as requiring 18 months plus a further 3 years | Both periods start from the same date. The 3-year window is the only clock that matters. |
Definition — First-Use Period
The 18-month first-use period is contained within the 3-year qualifying window. Both are measured from the same starting point — the date of first occupation.
In plain terms: you do not wait 18 months and then start counting a separate 3-year period. The 3-year clock starts when the property is first genuinely lived in, and the 18-month requirement is satisfied within that same window.
Illustrative Example
A homeowner moves into a newly completed property in January 2023. By January 2026 — three years later — the dwelling qualifies as an old private dwelling, with the 18-month first-use requirement already satisfied within that period. Renovation works commissioned from January 2026 onwards may be invoiced at the 5% reduced rate.
4. Summary of Changes
| Area | Until 31 August 2026 | From 1 September 2026 |
|---|---|---|
| VAT liability test | Two conditions: within 5 years of completion AND not used by unconnected person for 24 months | Single test: supply before first occupation (18 months of systematic use by any person) |
| 5-year criterion | Applies — building automatically becomes “used” at 5 years regardless of occupation | Removed — no automatic time limit; “new” status persists until first occupation is achieved |
| Connected-person use | Only unconnected-person use counts toward the 24-month period | Any systematic use counts — connected or unconnected |
| Schedule 5 / Schedule 8 alignment | Definitions differ — can produce contradictory VAT outcomes on the same property | Unified definition of first occupation applied across both Schedules |
| 5% renovation rate — qualifying period | 18-month and 3-year periods — relationship ambiguous | 18 months runs within the 3-year window — both measured from date of first occupation |
| Transaction structures covered | Primarily ownership transfers | All transfers: ownership, possession, future-transfer agreements, lease-with-option |
5. Recommended Actions Before 1 September 2026
Action Required
The removal of the 5-year criterion and the unconnected person requirement changes the VAT analysis for a broad range of existing properties — not just those currently in development. Developers, investors, and owners with completed property in their portfolio should assess occupation status now. The VAT consequences of a sale can differ materially depending on whether it occurs before or after 1 September 2026.
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